Swing Vs Scalp Trading: All You Need To Know

What is Swing Trading?

Swing trading is a type of short to medium-term trading strategy that intends to make profits from small price swings in an asset class. Swing traders tend to hold a trading position from a few days to several weeks. Just like all short types of trading strategies swing traders use extensive technical research and market analysis to design an effective trading method.

Swing trading strategy is used by trained investment professionals. However, independent investors also use this technique during periods of high price volatility.

Advantages of Swing Trading

• A swing trading cycle is complete in a shorter duration.
• Swing trading allows investors to generate faster profits on a short-term basis and capture the majority portion of a market.
• Swing trading heavily depends on technical analysis that ensures its accuracy and allows investors to perform quantifiable risk mitigation techniques.

Disadvantages of Swing Trading

• Swing trading positions can change value overnight or over the weekend which increases risk potential.
• Swing trading reversal can lead to a heavy amount of losses.
• Swing traders can miss out on long-term profits and remain focused on short-term earnings.

What is Scalp Trading?

Scalp trading is another short-term trading strategy. However, it is more time intensive in comparison to swing trading. For this type of trading strategy, investors keep an eye on smallest price changes and make profits by leveraging these changes.

On average, scalp traders close a position for a few hours to a day. In order to make profits, scalp traders make big trades and HFT (high frequency trading) to print maximum gains from smallest price movements. At the same time, scalp trading is a popular technique among trained investors and full-time traders.

Advantages of Scalp Trading

• Scalp traders are highly profitable if executed with precision and an effective exit plan.
• Scalp traders have many opportunities such as leveraging small changes in stock prices.
• Scalp traders do not have to worry about fundamental analysis.
• Scalp trading is a relatively low-risk trading strategy.
• It is a non-directional strategy where investors can operate independently of bullish or bearish sentiment.
• Investors can automate scalp trading after setting predetermined parameters in trading bots.

Disadvantages of Scalp Trading

• Scalp trading requires high investment budget and also expensive trading strategy.
• Scalp traders often have to rely on leveraged trades to make profits that can increase risk exposure.
• Scalp trading strategy requires extensive knowledge, technical understanding, and continued concentration to complete.
• Scalp traders have to perform dozens or hundreds of trades in order to stay in profit.
• The high frequency of trades in this method can take a psychological toll on investors.

Swing Trading Vs Scalp Trading

Trading Frequency

Swing traders can hold a single trading position from 1 day to few weeks. However, it is also possible that they work with several trading positions placed in a parallel manner. On the other hand, Scalp traders usually use HFT method that requires them to quickly make selling and purchasing decisions. A lot of these traders may last only from a few seconds to minutes.

Trading Strategy

Swing traders usually focus on macroeconomic trends that require technical metrics and analytics. Meanwhile, scalp traders are able to generate profits with small price changes and therefore less reliant on technical or fundamental analysis.

Trading Duration

Swing trading positions can stay from a day to several weeks. In contrast, scalp trading has a much smaller trading duration that can be as little as a few seconds.

Risk Exposure

Swing trading is a low risk trading strategy on account of longer holding duration. On the other side, scalp trading can have a high risk factor on account of rapidly liquidating trading positions and considerable price volatility.

Potential Results

Swing trading generates medium level gains from mid-term price swings. However, scalp trading generates small gains but the profits are compounded at the end each trading day.

Skills and Experience

Swing trading requires expert understanding of technical metrics and analytical skills. Conversely, scalp traders do not heavily rely on technical or fundamental market analysis but aim to make profits from smallest price changes in micro units of time.

Conclusion

Short and mid-term trading techniques have gained popularity among cryptocurrency investors on account of high volatility. However, investors should beware of the underlying market risks and learn about methods to detect, avoid, and mitigate them to maximize their profit earning potential.