Differences Between Day Trader, Swing Trader, and Long-Term Investor

There are a lot of different ways to make money in the stock market. Although we are fans of generating consistent income as short-term investors, day trading stocks isn’t the only option. There are three types of investors in the stock market. As you consider the differences between day traders, swing traders, and long-term investors, we encourage you to reflect on your financial goals, trading frequency, how much time you’re willing to invest in researching, and your trading personality. Remember, there’s no right or wrong investor type.

What is a day trader?

A day trader actively invests for income, buying and selling stocks or options within the same day. While a day trader may be trading the same stock as a long-term investor or swing trader, the holding period is significantly shorter.

Unlike long-term investors, a day trader buys and sells the same stock within seconds or hours of owning it, not weeks, months, or years. Regardless of if you are a day trader or a long-term investor, you still want to trade technically sound companies. However, day traders look for small daily price fluctuations, a stock price increasing or decreasing in value. They may get in and out of a play dozens of times throughout the day, and they do not hold positions overnight.

In addition to reading charts, day traders have to stay updated on the news, market trends, and company announcements like a new product launch or mergers and acquisitions. These factors can all drive a stock price up or down. To learn how to read stock charts, choose the right companies to trade, and protect your risk in trading, check out our Trade and Travel course.

One important thing to note about day trading is the “pattern day trader rule (PDT)” imposed by The Financial Industry Regulatory Authority (FINRA). Suppose your brokerage account has a balance of less than $25,000 (minus crypto). In that case, you will be limited to no more than four day trades every five consecutive business days, regardless if you’re placing a trade pre-market hours (4 a.m. to 9:30 a.m. EST) or post-market hours (4 p.m. to 8 p.m. EST). If you violate this rule, your brokerage will flag you as a “pattern day trader.” Pattern day traders are required to have a minimum of $25,000 in their brokerage account.

What happens if you break the pattern day trader rule?

Having your account flagged as a PDT will result in restrictions and increased scrutiny. Some brokerages suspend your account for up to 90 days, while others restrict you from opening new positions until you add more funds into your account.

If you aren’t an official day trader, you can still make a daily income from the stock market. Watch this video to learn how to day trade stocks without having $25,000.

What is a swing trader?

Swing trading is ideal for investors looking for a middle ground between day trading and long-term investing. While a day trader buys and sells the same stock throughout the day, a swing trader holds onto a stock overnight. Anything less than a year is considered a short-term swing trade.

Considering that some stocks need time to move, swing traders identify short-term to mid-term trends and growth opportunities. By using technical analysis, they determine when to get in and out of trades, and they typically look for less volatile stocks with a trajectory of steady growth.

As a swing trader, the goal is to buy low, hoping that the price swings up so you can take profits. To do this, you’ll need to find companies that offer consistent long-term gains. Many swing traders take advantage of protective stop-loss orders to mitigate risk, so they capture gains even on the way down.

Swing trading is a good strategy for investors that have jobs that do not allow them to look at the market often. They can still use the same technical analysis tools as day traders but hold positions longer.

What is a long-term investor?

Unlike swing traders and day traders, who use the buy-and-sell strategy for quick gains, long-term investors buy-and-hold looking for long-term growth. Most long-term investors hold onto their assets anywhere from one year to 30+ years because they believe time in the market is more favorable than timing the market.

As passive investors, they spend less time researching and typically check their investments a few times a year. As a result, they are less concerned about daily price fluctuations or market corrections.

Many long-term investors utilize an investing strategy called dollar-cost averaging, where they contribute to their accounts regularly regardless of what’s happening in the market. In addition to stocks, long-term investors usually invest in mutual funds, exchange-traded funds, and index funds.

Are You a Short-term Investor or Long-term Investor?

As a recap, the differences between day traders, swing traders, and long-term investors come down to how long you plan to hold a position. Overall, day traders and swing traders are active investors, while long-term investors are passive. Day traders look for short-term price fluctuations with the goal of gaining consistent income versus a long-term investor’s hopes for growth over time.

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