Scalping vs Swing Trading – Compare & Know which is better for TradingLast Updated Date: Nov 24, 2022
In this article, we will look at two popular short-term trade forms. We will also elaborate on the several differences between both these forms, i.e. Scalping vs Swing trading.
Trading in securities especially in stocks is a very wide concept. There are many forms of trading encompassing different trade strategies.
Securities traders specifically looking to profit from price changes in relatively short time periods. This is contrary to investors, who may have a more long-term outlook.
About Scalping vs Swing Trading
Scalping is a very short-term trading strategy that seeks to profit from small price changes. Scalping trades square off within a single trading session, in fact often within minutes.
Scalpers (traders who engage in scalping) undertake several – sometimes hundreds and thousands of trades within a single trading session.
Scalping books small profit ranges which can be magnified with large volumes.
Example – A scalper buys 1000 units of a stock at a seller’s quoted ask price of INR 5 each. Within minutes, the scalper notices bid offerings exist for the same stock at INR 5.10.
The scalper will immediately execute the sell trade and book a profit of INR 100 (1000 * INR 0.10). The basis for executing the trade here is the bid-ask spread.
While the profit of INR 100 may seem small, the scalper can execute 100s of such trades to magnify his overall profits.
Swing trading is a short-term trading strategy that looks to book profits on upswings and downswings in price trends of security.
The time period for a swing trade is generally anywhere between 2 to 10 days. A swing trade can also continue for over a week in case the price trends warrant.
Swing trading works on the premise of forecasting price movements based on price trends and taking buy and sell decisions accordingly.
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Compare Swing Trading vs Scalping
While both scalping and swing trading are short term strategies that look out for fairly small price changes, there are several factors that distinguish them.
Let’s look at these distinguishing factors:
The 1st & major comparison factor between Scalping vs Swing Trading is Time.
The time horizon for scalping concludes within a single trading session. In fact, scalping trades generally square off within seconds or within minutes.
The time horizon for swing trading on the other hand is much longer. Swing trading could extend over a few days to even a few weeks. Swing traders do not square off within a single trading session.
Another important differentiating factor between Swing Trading & Scalping is obhective of trade.
The objective of scalping is to earn minor profits on quick trades which can be multiplied by executing large trade volumes.
The objective of swing trading on the other hand is to earn profits on securities that are expected to follow a specific price trend which can be forecasted to book profits.
Quantum of Trades
Volume of Trade is an importance factor to Compare Swing Trading & Scalping.
Scalping involves a very large quantum of trades. Scalpers engage in a high volume of quickly executed trades that individually earn small profits.
In fact, they may engage in several hundred trades within a single trading session. Swing trading involves fewer trades.
Swing traders hold onto their positions for several days in a bid to make higher profits. Thus, the quantum of trades is fewer.
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Price trends of the security do not guide scalping. In fact, price trends do not concern scalpers at all. Bid and ask spread occurring in the market guides scalping.
Price trends of the security guide swing trading. These price trends along with several technical analysis tools are used to forecast price movements.
These forecasts become the guiding factors for swing trading.
Level of Monitoring Required
Scalping executes trades within minutes, this means scalpers must continuously monitor the trade screen of the exchange.
They have to quickly react to changes in the bid-ask spread to execute their trades. Swing trading is based on price trends that continue over several days.
Swing traders do not monitor the market changes as closely as scalpers.
Aids to Trade or Tools for Trade Execution
Scalpers require certain tools to assist successful scalping trades. The tools must primarily contain information on price levels and trade volumes.
These include robust order management tools, ticker charts, live statistics, key price levels, etc. Swing trading relies on technical analysis techniques and tools.
These include Fibonacci retracement, support and resistance levels, channel trading, Bollinger bands, exponential and simple moving average, etc.
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Price Charts Followed
Scalping relies on ticker charts and price charts of very short periods such as 2 minute or 5 minutes charts.
Swing trading relies on price charts of a longer duration, such as of a few days or a few weeks.
Point of Trade Completion
Scalping trades are executed when a bid-ask spread occurs and is captured.
Swing trading is executed when the buy or sell signals determined based on technical analysis are activated.
Profit Potential for Each Trade
Each individual scalping trade has limited profit potential. This is because it is based on the bid-ask spread that is generated in a few minutes.
The profit potential for each swing trade is more as it is based on price changes that occur across several days.
Risk is a very major factor when we compare Scalping vs Swing Trading.
Scalping involves lesser risk than swing trading. This is because trades are executed within a few minutes where price fluctuations can be expected to be limited.
Swing trading is susceptible to ‘overnight risks’ as traders hold onto their trade positions for several days.
Sudden economic changes that can adversely affect the market makes swing trading susceptible to higher risk levels than scalping.
Cost Incurred is an important factor to consider while comparing Swing Trading and Scalping.
As scalping involves hundreds of trades in a single trading session, it also involves high brokerage costs. Each trade attracts brokerage charges making scalping more expensive.
The brokerage costs incurred in swing trading with fewer trades executed.
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Trader Mindset Required
Mindset of a Trader is very importance factors to Compare Scalping vs Swing Trading strategy.
Scalpers need to be quick while thinking as they need to take quick decisions and act fast.
They should also be conditioned to operate under high stress levels. In fact, they must be disciplined and continuously monitor the market throughout the trading sessions.
Swing traders on the other hand must be patient. They rely more on technical analysis tools and should thus have the ability to patiently follow trade signals generated by these tools.
Swing traders should resist being swayed by their fears and emotions and patiently wait for desired price levels to be achieved.
Experience Level Required
Last factor of comparison between Swing Trading & Scalping is experience level of trader.
Only experienced traders can execute scalping successfully as they rely on their experience to take quick and correct trade decisions.
Novice traders can however attempt swing trading as they can rely more on automated technical analysis tools.
Conclusion: Scalping vs Swing Trading
As the several distinguishing factors have demonstrated, scalping and swing trading are quite different in their trade strategies.
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