Intraday vs Swing Trading: What's the Difference?

What Is Intraday Trading?

Intraday trading is the buying and selling of a stock or other eligible instrument during the same trading day. The position is typically closed prior to the end of the trading session so it's not carried over into the next day.

Intraday traders will be looking at short term price action, trading volume, candlestick charts and various technical indicators in an attempt to identify potential entry and exit points. Some of the trades will be very short lived (a few minutes), others will be open for several hours.

For instance, a trader buys a share at ₹250 and sells it at ₹254 in the same session. The price difference is ₹4 per share prior to brokerage, taxes and all other applicable charges. If the price moves the other way the trade will be a loss.

Intraday trading demands constant monitoring of the market. Prices can move very quickly and a decision that seems perfectly sensible at one point may well need to be re-thought minutes later.

What Is Swing Trading?

Swing trading is all about picking up the price moves that occur over a number of trading sessions. A position can be held for a few days or, according to the strategy, for several weeks.

Rather than just looking at the price action of the day, swing traders are looking for trends, breakouts, pullbacks and reversals. They'll often be working with daily or 4hr charts and will be looking at support and resistance, volume patterns, technical indicators etc. Company results, sector news and the state of the market as a whole can all be factors in their decision making.

A trader buys a stock at ₹250 having spotted a potential uptrend. The intention is to hold the position for a number of days with a target of ₹270 and a defined exit if it should go down. The stock may or may not reach the target, may go sideways or may go down. It's all down to what the market does, not how long you've held the position.

Swing trading in general requires far less screen time than intraday trading. The positions are still however exposed to overnight gaps and developments that occur when the market is closed.

Intraday vs Swing Trading: Key Differences

The best way to compare these approaches is to look at how they work in practice.

1. Holding period

Intraday positions are opened and closed in the same day. Swing trades are carried over from one session to the next. This has a bearing on how the trader will go about their entries, exits and risk.

2. Time commitment

Intraday trading will obviously require a lot of monitoring, especially in the course of a volatile day. Swing traders may well be looking at their positions at certain times of the day but they'll still be required to keep an eye on the news and the price action.

3. Trading approach

Intraday traders are generally looking at short term price action, momentum, volume and the various technical indicators. Swing traders are more often looking at the broader price patterns and trends that may take a few sessions to form.

4. Overnight exposure

Intraday traders will normally close their positions prior to the session ending in order to avoid any overnight exposure on those trades. Swing traders will have positions carried over overnight and are therefore exposed to the risk of gaps (i.e. the price can jump up or down overnight) due to an earnings announcement, economic data, the state of the global markets or some other news event.

5. Costs and trading frequency

Intraday traders will tend to place more orders as they are in and out of positions quite frequently. This will in turn increase the cumulative impact of the broker and statutory charges. Swing traders may trade less frequently but their costs will still be a function of the instrument, the broker, the value of the order and the charges that apply.

6. Risk management

Both approaches require a clear trading plan. The intraday trader can use stop losses and position limits to deal with the short term price action. The swing trader also requires stop losses but has to take into account the overnight gap which can result in an exit at a price which is different from the stop loss level that was originally set.

Neither approach will guarantee you a profit and frequent trading in no way guarantees better results.

Which Is Better for Beginners?

There's no one answer to this. The appropriate approach is going to vary depending on how much time you can spend on the market, your understanding of the risks involved in trading and your ability to stick to a plan.

Intraday trading will of course attract those who are able to watch the markets during the day and make decisions under time pressure. The speed of the market can be quite demanding and the rapid price movements can lead to some very impulsive trading.

Swing trading will be appropriate for those who like to be looking at the charts outside of the market and who are happy to hold a position over several days. It does require patience and the ability to deal with the uncertainty of a position being open.

Before you go and pick either approach you should at least get to know the order types, position sizing, the use of stop losses and the impact of trading costs. Practising with hypothetical trades or paper trading will go a long way to familiarise you with the system without any real money being at risk.

Can You Use Both Trading Styles?

Some market participants will use both approaches but each will require a separate plan. A strategy that you'd use for a stock you're holding for several weeks is unlikely to be the right one for a trade you're going to be in for twenty minutes. The entry signals, the stop loss levels, the position sizes and the exit rules will all be dictated by the holding period you're using.

Tools via platforms such as the Ashika Dhanush app will allow you to track market prices and view charts. They can assist with your analysis but will not in any way eliminate market risk or allow you to predict price movements with any degree of certainty.

Final Thoughts

The difference between intraday and swing trading is really down to the holding period, the amount of time you're going to be in the market, the type of move you're looking for and the risks involved. Intraday is all about the opportunities that arise in a single session. Swing trading is about looking for the moves that occur over a number of sessions.

Before you go and pick a style, think about your own day to day schedule, your own level of trading knowledge, your own financial circumstances and your own tolerance for loss. A good plan and good risk management are far more important than picking the style that looks the quickest or the most profitable.