DAY TRADING VS TREND TRADING

Over recent years the ability to trade the financial markets from home has become so accessible and prevalent. Technically you can get started with as little as £250 and zero knowledge of how to trade. This is a scary thought but unfortunately many new traders go down this route and they opt for day trading as they believe this is the route to quick riches.

Unfortunately, successfully trading the financial markets is not as easy as that. In this article my aim is to explain the different styles available to retail traders. I’ll give the advantages and disadvantages of each and my personal recommendations.

Day Trading

Day trading is the style of trading that you’ll see most traders promoting on social media. It is portrayed to be an easy and quick way to replace your full time employment. Unfortunately this isn’t the case in reality.

How Does Day Trading Work?

Day trading is a style of retail trading where your aim is to enter and exit multiple trades per day hoping to profit from price movement in whichever market it is you’re trading. As a day trading you’ll likely have a handful of Forex pairs or mixture of other markets that you trade. These might include, stock indices, some popular stocks or commodities such as gold.

As a day trader you’ll be trading from low time frame price charts, such as the 60, 30 or 15 minute. These low time frames will enable you to enter and exit trades multiple times per day. Your trades will have a set stop loss and take profit target, preferably with a favorable risk: reward ratio.

Benefits of Day Trading

Most new traders opt for day trading because they think that being in and out of multiple trades per day is how to make the most money. This isn’t necessarily true, as I’ll explain with trend trading. However day trading is advantageous to those who want to be as active as possible in the markets. Day trading is for those that have a passion for the process and the intricacies of the markets, love executing trades and enjoy the thrill of day trading because it gives them more screen time.

Disadvantages of Day Trading

Besides money, trading full time can bring with it time freedom. Not having a 9-5 and living your life by your own design is a huge factor to those wanting to learn to trade. However day trading is a very time consuming style of trading, because it is based off intraday time frames.

Although yes, you’re working from home and you’re your own boss. But trading can be far more passive than this.

The other main disadvantage to day trading, compared to other styles is the stress and precision of execution it involves. Because day trading is short term in nature, timing and precision is far more important, compared with longer term trading. You’re dealing with more noise and volatile short term price moves. This leads to larger fluctuations and volatility in your profit/loss and therefore more stress and less margin for error.

Scalping

Scalping is very similar to day trading. The main difference is the length of time you’re in a trade and the time frame price charts involved. Scalping is even shorter term than day trading. A scalper will be using 1 or 5 minute time frames and extracting just a couple of pips in price movement from each trade.

Swing Trading

Swing trading is longer term than day trading. This style of trading will likely be based off 4 hour or daily time frame price charts. Generally a swing trader will hold trades for a few days to a few weeks. The idea is to capture larger swings in price movement. Swing trading strategies can be applicable in wide consolidating markets. The aim being to capture price movements between the highs and lows of the range based on support and resistance.

Swing trading can also be used in trends. Rather than capturing whole trends, with swing trading you’ll likely profit from swings in price movement between lower highs and higher highs within a larger bullish trend.

Why Swing Trading Might Suit You

Swing trading will give you more time freedom as a trader. If you are trading from the daily time frames then realistically you only need to manage or execute trades once per day. This frees up your time to do what you want. Of course if you prefer to execute trades from a lower time frame then more time commitment might be necessary.

I personally have two swing trading strategies that I use when the US stock indices are void of trend.

Trend Trading

Trend trading is far longer term by nature. It lies somewhere in the middle between swing trading and a more investment style of trading. With trend trading, entries will be taken from daily time frames. However, weekly, monthly and even yearly time frames will be used for technical analysis. Trends can last for months if not years at a time. The aim of trend trading is to enter a trend close to its beginning. After entering you’ll use a trailing stop loss (as opposed to a fixed profit target) to follow price as it makes new higher highs and higher lows. This stop loss will be wide enough to cater for normal sized pullbacks within the trend.

Rather than only trading a handful of instruments, as a trend trader you’ll scan across multiple asset classes to find the best trends. This will include stocks, commodities and Forex.

A lot of traders wonder how you can make substantial returns from trading such a relatively slow and long term strategy. The answer to that is through compounding. Also, with trend trading your stop losses and position sizing is so much wider. This means you can get away with having slightly more risk on the table in comparison to day trading.

Below is a screenshot of an example of a long term trend that would significantly grow your trading account from minutes of work per week:

Benefits of Trend Trading

Trend trading is my preferred method because it is far more passive than day trading. It requires about 10-15 minutes of my time per day Monday-Friday. I then spend a maximum of 2 hours at the weekend doing more in depth analysis ready for the week ahead. This means my whole trading week takes me less than 4 hours. A typical day trader on the other hand would likely spend at least 4 hours per day in front of their trading desk. I

Through the power of compounding and trading multiple trends at once, the returns possible with trend trading will be at least that of day trading, if not more.

Trend trading is far slower and less volatile than day trading, meaning it’s a far less stressful and healthy way to trade.

Why Trend Trading Isn’t as Popular as Day Trading

Trend trading generally isn’t as popular among newer traders. I believe this is because as already mentioned day trading is portrayed as an easy get rich quick scheme. On the other hand trend trading requires more patience to materialize any sort of profit. Traders are put off because they don’t believe significant returns can be seen with such a slow style of trading.

Also worth noting is the 5-10% success rate of day trading. This suggests it really isn’t as easy as most ‘gurus’ make out. Failure is partly because when the naïve trader realizes its not as easy as its made out to be, they either give up, lose all their money or bounce around from strategy to strategy not getting anywhere.

The right mindset from the get go, a good mentor, trading software and investment in your time is what will set the foundations for a long and lucrative career trading the financial markets from home.

Time to Change?

If you’re currently experiencing some roadblocks with your own trading then we may be able to help.

Join our TG community where you can follow our swing trading process by getting access to our weekly watchlists, our real-time swing trading portfolio and much more. Our portfolio is updated in real time with exact entry and stop loss prices, as well as full transparency with out exit and risk management.

This community is designed to help those wanting more insights into how we trade the markets and to get real results of your own.