Being in the forex market for several years now and getting hands-on experience in this field, I can say that the choice of the proper trading strategy is a make-it or break-it factor. I have practiced other strategies like day and position trading but I was only able to be consistent when I focused my strategies to scalp and swing trade. These two strategies are popular with traders seeking quick profits but each of them is quite different in practice.
Scalping involves executing many quick trades to make small profits while swing trading entails holding on to the position for days or even weeks to earn profits from the overall price changes. I will, therefore, make a comparison between the two strategies so that you can choose the one you feel is right for your orientation and expectations.
What is Scalping?
It was the first time that I was engaging in scalping, and I felt like I was in the middle of a trading competition for a thousand bucks. This is a trading strategy whereby investors execute hundreds of trades within one single day, only sustaining the positions for a few seconds or minutes. The ultimate goal is to make small profits out of many trades, and although most returns from each of these trades would be more or less humble, the number of these trades ensures that the earnings build up quite fast.
At first, I understood scalping is not for the weak-hearted. You have to concentrate fully and act instantly. You are always on the hunt for low buys and high sells, even if those are just in cents or pips. In my case, I picked 1-5 minute price charts and used them to optimally buy and sell the securities. It was like drowning in Tsunami, and although I found some days to be enriching and profitable, a constant pressure was always there. If you're considering scalping, it’s important to create your personal trading plan to help manage the pressure and stay consistent.
Advantages of Scalping
Fast returns: It does not take too long before one knows whether the invested capital has earned any profit or not.
Less exposure to risk: Since people only want to remain in the market for very brief durations there is hardly any exposure to the dangers of undesired fundamental events catching them unprepared.
Lots of ways to trade: Very frequently, there are chances for scalping as trading forex is not a stagnant activity – there are always chances to make a profit from various price moves.
Cons of Scalping
Tired: Keeping an eye on the market and acting on it within seconds every moment is not an easy task.
High commission: Trading many times in a day means moving in a lot of trades leading to very high commissions which are tension for profits.
No part-time activity: Scalping is a full-time commitment. In other words, this is not something that you can do without dedicating your whole being to it. It needs a well-developed sense of urgency that makes one keep looking at the screen during trading hours.
For me, scalping was an extreme sport. It stressed me out but was very satisfying as well. Unfortunately, I came to understand that although it was profitable, I could not engage on that sort of level again without any regard for my health. Too much concentration and too many rush orders made me tired and I realized that I wanted something simpler and freer.
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What is Swing Trading?
After learning scalping techniques, I transitioned to a swing trading system, and this change was critical in determining how much fun I would have when playing the trading game. In contrast to scalping, where one evaluates their position for a few minutes at a time, swing trading is the collection of trades with a duration of positions that last from several days to even weeks. The aim is to profit from the bigger “swings” in price, also known as the market “swings”.
Swing trading cheered me up so deeply I felt no strain whatsoever. I was not required to remain in my chair, physically attached to the computer the entire day. Instead, I would analyze the market and look for signs of trends set my trades, and then log on throughout the day only a few times to check how the trades were working out for me. It made it possible for me to have a good work-life balance and still be active in the market.
I placed a very strong emphasis on daily time frames and combined them with many technical indicators such as moving averages in order to pick specific trades. For instance, whenever I observed a strong uptrend, I would place an order with the prospect of maintaining it for a couple of days or more until the uptrend persisted. The good news was that I did not need to respond to every small fluctuation in prices. Rather, swinging was a chuck that was slower but systematic in application.
Pros of Swing Trading
Time-efficient: Day trading requires that you locate yourself mostly behind the screen, which is why swing trading is very ideal for part-timers.
More profit potential: The reason is being able to accommodate bigger changes in the market as position changes are held for longer.
Lower brokerage fees: Since you trade less frequently, this would imply that fewer commissions will be spent as opposed to scalping.
Cons of Swing Trading
Carrying trades into the next day: This is a disadvantage because sometimes one might be out of the market and then there are huge movements which one misses out on.
Emphasis on waiting for a trade to unfold: Swing trading is slow, sometimes you have to sit on your hands for a couple of days or week(s) for the trade to develop fully.
Do not address short-term trades: Every time there is a focus on the long-term picture, there are always chances which could be take advantage of quick trades and make profits.
I had to say, swinging turned out to be more productive than scalping for me. I enjoyed the fact that I did not have to stick clinging to the charts and worry about every tick. It also forced me to be more tactical, slinging my analysis and going after much more substantial moves. On the contrary, the overnight risk, on the other hand, became something I had to adjust, particularly when the price moved up so much overnight while I was asleep.
Scalping vs Swing Trading: Key Differences
In my own personal experience, I would say that scalping and swing trading resemble sprinting and long distance running. The end goal, ofcourse, is just the same but the way how one gets there is completely different. I would like to expose some key differences that helped me in determining which one is more appropriate for me.
Time Horizon
One of the most noisy differences is the time horizon. As a scalper, I would execute a trade for a matter of seconds or a couple of minutes. I was really making trades for very short period to take advantage of small price fluctuations, and I was not planning to be in a trade for long ‘cause the market could move against me at any time.
Swing trading on the contrary, permitted me to retain trades for a period of days or even weeks. The whole philosophy was to go after the underlying bigger swings and trends in price action. I relished the power it accorded me – I could avoid being in front of the trade over a duration of screen time that lasted hours. Swing trading is much more accommodating if you are one of those who are less inclined to being chained to their computers.
Number of Trades
During the scalping strategies, I made hundreds of trades per day. Each trade earned me a small amount of profit, but the profit made in a day was great due to the number and frequency of the trades. It was very fast, very intense work and by the end of the day, I would either be burnt out or full of adrenaline (depending on how the market treated me).
In swing trading, however, there are much fewer trades taken. I wouldn’t trade more than probably a few times a week, however, every successful trade I made would be usually bigger in profits than the couple of usual pips when scalping. Slow pace on the other hand was better and enjoyable in swing trading. It felt more tactical and I could consider every single trade carefully before pressing the execute button.
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Profit Per Trade
Scalping taught me how to deal with minimal profits, and then I mean ‘just a few pips’. The revenue from any one transaction, in and of itself, may not be much but since I was doing many such deals, this had the capacity to accumulate over time. Nevertheless, there were days when all the small gains could be relieved in a single unyielding sweep from a single bad trade.
Rather than paying attention to daily price movements, there is a significant tendency to analyze long-term prices. When I was considering different types of forex trading, I knew that there was an opportunity for each trade to be more profitable than day trading. Indeed, as I was following market trends, I could take more significant price risks. Today, even purely research-oriented FA takes considerable time, to accurately determine a company value, finding regarding long-term investments that include more than just scanning stock prices. There are position risks, too. For instance, it increased because I was holding trades for longer, thus facing larger market swings.
Stress and Monitoring
If you enjoy very high tensile, scalping is likely to suit you. I enjoyed it, but I must say, this was the part that was the most difficult. There was no sushi break, there was not even 1 second to waste, and when the market changed no one knew when it would change again. As far as the stress is concerned, swing trading was much more comfortable for me. I generally had to look at the market about three times a day and I was not in the same frantic state about being the first to respond when a price move occurred.
Risk Exposure
One thing I quickly learned about scalping is that it comes with reduced risk exposure. Working in short time frames never really left me exposed to abrupt price action changes due to certain market news or events leading to sudden volatility. However, unlike scalping, swing trading involved keeping the trades open overnight which again was based on assumptions but with an added edge of risk. So, in those instances, I would open my eyes in the morning and see that the market had already moved again seriously while I slept, for better or silly, depending on the scenario.
Which Strategy Suits You?
You can call it a personal bias, but I think everyone should try to find a financial strategy that complements their character. I’ve done some active trading and noticed that I fell in love with scalping in the beginning, but it was swing trading in the end which matched with my character and timings.
For Scalpers
If you have a flair for thrill where you can get your heart racing, basically scalping may be for you. It is perfect for those who can make snap decisions, keep their calm under stress, and attention to the market without distractions for the entire trading desk time. For those who can handle scalping and do it properly, the fruits of such endeavors can be very sweet, however, it is not everybody’s cup of tea.
For Swing Traders
If on the other hand, you are a patient lady or gentleman who enjoys analyzing things, you might have to consider swing trading instead. It allows you to refrain from being under pressure to rush and analyze the market. While you can rest from the markets, you can still have a 9-5 job or other engagements do active trading, and be productive. If you do not like fast fast-paced approach to trading then this strategy is the best.
For me, it was swing trading that offered me increased freedom and flexibility. I didn’t have to sit all day in front of the screen, and I relished studying the market and executing trades more judiciously with a limited number of transactions. But that is only me – some traders enjoy scalping as it is fast-paced and often demands too much concentration.
Technical Tools and Indicators
Effective execution of both scalping and swing trading requires that a trader is equipped with the right tools. For the record, I have tried a number of different indicators and charts in the course of a few years now in a bid to be able to pinpoint the best places for entry or exit for both of those strategies. Allow me to explain this in more detail with examples that worked for me in each case.
Scalping Tools
In scalping, you need speed and accuracy above everything else. What you should focus on is looking for tools that can help you make quick and proper decisions. When I was doing the scalping, these were the types of tools I relied upon the most:
1-5 Minute Charts: As scalping is about trading within a matter of seconds or minutes, I focused on very short-term charts. In most instances, I used 1-minute and 5-minute charts to follow short movements in prices. The lower your time frame, the more tiny movements in the market you will be able to note in order to take advantage of these movements.
Tick Charts: These depict price changes concerning the number of trades made rather than the time taken. This is helpful when the market becomes active since it allows one to track trade volume and the accompanying price fluctuations. In fast trading with numerous orders tick charts worked for me like a pencil sharpener.
Trading Through a Broker: Apart from that, direct broker access is necessary whenever a trader is scalping, since trades need to be done instantly. I should note that due to the very fast nature of my scalping, the usual brokerage would not have been enough, so I shifted to a DDA broker which has very low lag executions.
Level 2 Market Data: The broader range of information includes Level II Market data which gives access to up to the full order book with identified other participants’ bids and offers. For scalpers, this information was necessary for identifying points where a lot of buying or selling pressure could be met.
Swing Trading Tools
Swing trading, rather than simply buying and selling requires a completely different toolbox. Here, however, the concentration is on establishing broad market trends and keeping open positions for a longer time. Here is how I managed to prosper with swing trading:
Daily or Weekly Charts: Since a swing trade takes more than one active cycle to complete, which comprises days or weeks; I relied on daily and weekly charts. I used such a chart to be able to identify ordinary or significant trends in the market that can enable or discourage entering trades.
Moving Averages: Moving averages (like the 50-day or 200-day) are nice tools for identifying trends. They helped me eliminate excess currency data from the charts and identify trend reversals. Therefore, in swing trading, I frequently opened positions when the price crossed major moving average values lower or higher.
Support and Resistance Levels: The level at which the prices tend to reverse from support or resistance levels is important to understand. These areas were most frequently marked by me on my trading viewing screens before performing a trade. For example, in an uptrend, I would buy near support based on a previous level, while in the case of a downtrend, I would look to sell near resistance.
Technical Indicators: I used lots of different technical tools, but the best ones, for me, were Relative Strength Index (RSI) and Fibonacci levels. I could guess overbought and oversold markets with RSI and the Fibonacci extensions told me where significant pullbacks might happen.
Volatility Indicators: This is important in swing trading because you want to catch swings that come about due to volatility in the prices. Tools like Bollinger Bands as well as the Average True Range (ATR) are the ones that I deployed in trying to understand the possible movement of the market.
In particular, these instruments have changed my perspective and my professional approach both as a scalper and as a swing trader. I began to find out that my achievements were not strictly about the tools only but also about how the tools were used. As time passed, I was able to integrate my technical analysis into the unique requirements of each strategy, and that put me ahead of the game.
Risk and Reward Comparison
In my opinion, scalping and swing trading have different risk and reward profiles. For scalping, the risk per trade was lower but it required almost complete accuracy across many trades to profit. However, due to the tendency of human beings to overtrade, swing trading will maximize the profit made on individual trades but will also increase exposure to market risk especially overnight.
Scalping Risk and Reward
Lower risk exposure: As scalping trades are so short, I was not prone to the market for long periods, which helped to limit my risk. On the contrary, however, the gains from each trade were also minimal and I had to perform several trades right to achieve great gains.
Frequent profits: The excitement of aiming for small but many profits was exhilarating. Still, one bad trade could erase three or four small wins and therefore there was no alternative but to be very strict and even as well as persistent.
Swing Trading Risk and Reward
Possibly bigger profits: In the case of swing trading I could hold the trades long enough so that I was able to make bigger moves on the price. A single trade gone right could make profits many times over than what I can get from scalping in one trade.
Overnight risk: The downside was having the exposure of holding the trades overnight and at times even on weekends. More often than not, I would tend to wake up to a situation where there was more volatility in the market than expected, which sometimes, was for my good and other times, not.
Both strategies have their own risk and benefits and the right one is dependent upon the level of risk appetite and the level of activity one wants to engage in with regards to the management of the trades.
Conclusion
As I progressed in forex trading, I came across both scalps and swing trades and each of them offered me something. For me, it was more of acclimatizing to my personality, way of life and risk appetite.
If you are one of those who love the exhilarating spool of money from minute to minute and can withstand the pressure of making split second choices, scalping can work best for you. It is acute and is time consuming but if it is done the right way, it pays off especially when the markets are active.
But if you wish to take a slower stand and make bigger moves slowly over time, swing trading will suit your needs. I with regards to this strategy preferred this one as it offered me freedom since I did not have to stay on my laptop managing the trades throughout the day. The swings in the market had better returns per trade and less anxiety compared to trading breaks in the market thus was a better option for my trading style.
In the end, the one that seems best is the one that conforms to your objectives and character. I suggest giving both a go in a demo account to see which fits you best. No matter if you like to participate in many small trades a day or rather sit and wait for the right moment to strike, there is no path to success without mastering the risks, having the right tools, and keeping oneself disciplined.
Trading is a process, and having the most appropriate approach in your arsenal will bring you one step closer towards your ultimate goal of being a prosperous and self-assured trader.
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