Position Trading vs Swing Trading
Position trading vs swing trading – both are popular trading methods. But the one that's right for you largely depends on how long you want to hold an asset before you reap the benefits. However, this isn't the only factor to consider before you dive headfirst into your trading strategy.
To learn more about swing vs position trading and which is right for you, read our expert guide.
Position vs swing trading: What we'll cover
- What are the most common swing trading markets?
- What are the advantages of swing trading?
- What are the disadvantages of swing trading?
- What is position trading?
- What are the most common position trading markets?
- What are the advantages of position trading?
- What are the disadvantages of position trading?
- Swing trading vs position trading: which should you choose?
- Start swing or position trading with Tradu
What is swing trading?
Swing traders look to profit from short-term price fluctuations that occur during the overall stock price trend. By holding a position for a short period of time (normally either a few days or weeks), investors hope to make a profit from price movements in the market. These movements are referred to as price 'swings'.
Swing traders analyse the stock's trend before choosing an opportunity. For example, even if a stock has been on an upwards trajectory, there are usually small drops in asset prices for a few days or weeks before the asset continues the uphill climb.
If traders can get in at the bottom of the dip and hold their position, they can make potential profits with these small price swings.
Although the profits don't come as quickly as methods like day trading, swing trading requires less commitment than other styles. For this reason, it's popular with those looking for supplemental income. Learn more about swing trading in our complete swing trading guide.
What are the most common swing trading markets?
As swing trading focuses on market trends, markets showing clear movements lend themselves best to swing trading. You can also use swing trading to trade commodities experiencing a shift in momentum. This is because the shift in momentum can signify to swing traders that a new pattern is emerging – and thus, an opportunity.
Although swing trading is favourable in most markets, the most common ones targeted by swing traders are stock indices and individual stocks.
What are the advantages of swing trading?
Swing trading is popular with many investors – and for good reason. Some of the biggest advantages of swing trading include:
- It's less of a time commitment – Although it requires more effort than long-term investing, compared to day trading, it's far less time-consuming. Whereas day traders watch price charts all day to analyse the data, swing trading only requires you to analyse the market at the end of each trading day.
- It's not a 9-to-5 job – If you're looking for a way to generate passive income alongside your day job, swing trading is a great option. As you can usually hold down a full-time job and swing trade, it means that you're far less likely to make hasty decisions in a bid to make a quick profit.
- It doesn't tie you down for long – Whereas your capital can be tied down for months (or even years!) in long-term trading, swing trading allows you to take a small loss if it means that you can escape a bad trade. This flexibility offers peace of mind to many traders.
- It's profitable – Granted, swing trading isn't as lucrative as day trading, but it can still be profitable if you have a robust trading strategy.
What are the disadvantages of swing trading?
Despite the merits of swing trading, there are some downsides. These include:
- Trades stay open overnight and during the weekends – This means that price gaps might occur after-hours. If this happens, stop losses will be rendered useless, so the only way to minimise the risk of price gaps is to trade without leverage and in smaller trade sizes.
- You can miss out – As swing trading profits from individual price swings, there's always the potential when you pull out of a trade that, if you'd have stuck with it long-term, your profits would be significant. For example, if you pulled out of Tesla, you'd have made less than if you'd stuck with it due to recent price surges.
- It's not easy for beginners – Swing trading's market timing is tricky to master. It’s tough for seasoned swing traders and almost impossible for beginners.
- While pursuing profit opportunities, Swing trading carries its own financial risk which might leads to potential losses.
What is position trading?
Position trading is where you hold a position in an asset for a long period of time – typically for a few weeks to a few years.
The opposite of day trading, position trading is one of the longest trading styles.
Rather than focusing on short-term price swings, position traders adopt a similar stance to long-term investors and focus instead on the long-term performance of an asset. For this reason, position trading requires patience, discipline and a willingness to endure short-term losses, especially if stocks prices are volatile. Learn more about position trading.
What are the most common position trading markets?
Liquidity and transaction costs are important matters to consider in position trading. This means that certain markets are more attractive to position traders. Some of the most prevalent position trading markets include:
- Equities
- Bonds
- Commodities
- Interest rates
- Indices
What are the advantages of position trading?
Position trading is a popular middle-ground between long-term investing and day trading. Some of the biggest benefits of position trading include:
- It's less stressful than other trading methods – As you hold onto a trade position for longer, you don't need to continuously watch the markets like a hawk. This makes position trading less stressful for many.
- There's potential for high profits – As you'll hold onto a trade position for a longer period of time, if you choose the right trade, your profits can skyrocket. If you choose correctly, your earning potential is far higher compared to shorter-term trades.
- You'll pay less in transaction costs – As position trading requires holding a position, you make fewer trades. As such, you won't have to pay as many transaction fees.
- You can ride out less-than-favourable fluctuations – Much like long-term investing, position trading allows you to ride out market fluctuations so, even if you're making a loss in the short term, you might still be able to make a profit eventually.
What are the disadvantages of position trading?
Despite its merits, there are some disadvantages of position trading vs swing trading. These include:
- Opportunities are somewhat limited – Compared to swing traders, position traders may only have a few trade opportunities each year. As it's a long-term trading method, position trading is less exciting than other short-term strategies.
- It's hard to predict long-term trends – Predicting long-term trends in the market with accuracy is extremely difficult. This means that, especially in times of market volatility, risk can be significantly higher.
- Returns are slower – As the position is a longer-term trading strategy, returns can be slow. Although this isn't necessarily a bad thing for patient traders, those looking to make a quick profit might be better with other strategies.
- It can be high risk – As position trading is directly impacted by market events and news, you're more likely to experience unexpected losses.
Swing trading vs position trading: which should you choose?
Swing trading and position trading are two widespread trading methods but which one is right for you depends on your timescales, level of activity and approach to the markets in general.
Choosing between the two styles requires careful consideration of factors such as risk tolerance, availability, tax, goals and your trading personality and level. Generally speaking, if you're newer to trading and require a more passive form of trading that generates wealth over time, position trading is going to be a better fit.
If you're looking to make short-term profits, or happy to frequently monitor markets and have a good level of experience, though, swing trading might be more suitable.
Start swing or position trading with Tradu
When you've decided where you sit in the positional trading vs swing trading debate, we can help you to put your plan into action. Our proprietary platform gives you unparalleled access to a range of markets, trading strategies and analytical tools.
To start your trading journey with Tradu, open an account with us today.