Swing Trading vs. Scalping: Comparing Two Trading Strategies

Swing Trading and Scalping... Two of the most talked-about strategies. They are also contrasting strategies in terms of principles and mechanisms, to the point that some traders side with one, while others side with the other. But if you had to decide which one to adopt, what would be the right choice? It depends on the individual trader's preferences, habits, mental state, and skills, of course. However, there is no effective choice without knowledge. Hence, the need for an analysis, preferably comparative, of these two strategies. We'll do that in this article.

An Overview of Trading Strategies

Before analyzing the two strategies in detail, it's important to take stock of the significance of the concept of strategy in trading. A concept that all traders of every order and degree would do well to fully assimilate. Also because it can have a dramatic impact on trading activity and earning prospects. So what exactly do we mean by trading strategy? We can consider a trading strategy as a set of rules and techniques aimed at providing the trader with all the necessary indications for effective trading activity in all situations. To be considered as such, a strategy must take into account and contemplate various elements of trading activity and at the same time all its phases. For example, a strategy must necessarily offer precise indications on the correct way to analyze markets as well as on the correct ways to manage the unexpected, downtrends, uptrends and phases of volatility or laterality. Trading strategies are numerous, potentially infinite, as they depend on fluid factors such as time horizon, risk propensity, and even the skills of the individual trader. Obviously, a strategy must provide a practical handbook for managing the most important phase of trading activity: operations, i.e., the closing and opening of various positions. An example of the great variety involving the "trading strategy" tool is precisely the coexistence in the same context of two radically different approaches such as Swing Trading and Scalping. We'll discuss them in the next paragraphs.

Swing Trading

What do we mean by Swing Trading? In a sense, it is the name itself that suggests the meaning. "Swing" means seesaw and in fact, Swing Trading conceives the market as a succession of uptrends and downtrends, almost as if prices were positioned on a seesaw. If this conception of the market is true, then the trader can exploit this particular setup to decide when to enter and when to exit, i.e., when to buy and when to sell. The peculiarity of this trading strategy is therefore the absolute coincidence of the time horizon of a position with the trend itself. It is therefore a strategy that places itself halfway between the short and long term. A trend can last a few days or a few weeks. Rarely, however, are we talking about months. The Swing trader is therefore halfway between an intraday trader and a long-term trader. It is in fact impossible for a trend to exhaust itself in a single day but it is also highly unlikely that a trend will exhaust itself over many months.

How It Works

But how does Swing Trading work specifically? As in many other strategies, it's about identifying the correct entry and exit points, an activity that in this case is facilitated by the need to place the boundaries of the trade close to or coinciding with the time boundaries of the trend. One of the crucial phases of Swing Trading is therefore identifying the trend as precisely as possible, with explicit reference to the starting point of the trend, the lows and the highs. That said, it is necessary to mention the two main approaches into which Swing Trading is divided. We'll discuss them in the next paragraph.

The Two Approaches

The first approach is the classic one and it is also the most widespread among traders who practice Swing. It is called Catch the Trend. It is a markedly Trend follower approach, and in fact it follows the trend not only in determining the entry and exit points but also as regards the tenor of the position, i.e., the direction of the Trade. In a nutshell, and taking an uptrend as an example, the trader will open a long position at the beginning of this trend. The position will be closed when the trend has just ended, if possible (but it is very complicated) a moment before. This reasoning obviously also applies to a possible opposite hypothesis, i.e., in the case of a downtrend. In this case, if the instrument allows it, the trader will open a short position at the beginning of the trend and close it at the end of the trend. The second approach is less intuitive and more difficult to put into practice. However, it can be as profitable as the first. It is called Fade the trend. As the name suggests, it is an approach that goes against the trend. In a nutshell, the trader acts in advance and aims straight at the Breakout, the trend reversal. To succeed in this intent, he must give his best in the analysis phase, especially of volumes, since these are the ones that offer the most reliable anticipatory signals.

Scalping

The discourse is radically different for Scalping. If Swing embraces a time horizon certainly greater than a day, for scalping a day is comparable to an eternity. This strategy lives on moments, on incredibly restricted time spans. In fact, it consists in opening and closing positions within a very short time: we are talking about minutes, not infrequently tens of seconds. The purpose of scalping is quite intuitive. It aims to make the most of the many oscillations and micro-oscillations that occur in the market. Those who do Scalping, assuming they manage to practice it profitably, guarantee themselves always minimal but numerous gains. If all goes well, the accumulated wealth is comparable if not superior to that produced by means of other strategies.

How It Works

Specifically, how does Scalping work? Well, if we look at the basic mechanisms, it doesn't differ too much from other trading strategies. It is in fact a matter of buying low and selling high in order to generate a surplus. What changes, but we have already said this, is that all this occurs at a frighteningly high pace. And this is precisely the point: the trader, to manage this pace, must possess remarkable technical and personal skills. Think of minimizing the time reserved for analysis, and doing the same with the purely decisional activity of Trade planning. We are not talking about a simple approach.

The Question of Skills

It is precisely the question of skills that is the main issue of Scalping. A Scalping activity, to be called profitable, must be based on skills so solid, so well-rooted, that they can be expressed in a very short time, practically immediately. Now, not all traders possess the right skills, many learn along the way. Even fewer are the traders who not only boast these skills, but manage to put them into practice with extreme naturalness, without doubts, without hesitations, in the shortest possible time. The conclusion, however disheartening, is therefore the following: Scalping is not for everyone, in fact it is almost exclusively for highly experienced traders. However, no one forbids you to try, perhaps in a controlled, safe environment, free of dangers, such as a demo account.

The Issue of Stress

But there is another important issue that closely concerns Scalping. An issue that actually involves trading activity in general: stress management. After all, the stakes are always high, whether dealing with the Swing approach or a normal multi-day approach, or a typically long-term approach. These stakes, obviously, are money. Now, it is clear that there is stress and stress. It increases and impacts with greater force depending on the degree of risk to which one is exposed, and the degree of difficulty of the activity being carried out. But if it is true that Scalping is among the most difficult strategies of all, and it is true that scalping forces the trader to enter the market several times in a day, then there is no doubt: Scalping is the most stressful activity among those related to the practice of trading. Here then is another very important requirement to be able to practice scalping profitably: being endowed with a marked coolness, with an uncommon stress management ability. All these skills, to a certain extent, can be learned but still require some predisposition. This further narrows the audience of traders compatible with Scalping. So, if you are thinking of trying your hand at this strategy, know that you may fail. The advice, in any case, is to always proceed with the opening of a demo account. In this way you can verify if your skills and personal qualities are compatible with scalping.

Swing vs Scalping: An Opinion

So here we are at the conclusion. Here we will try to pull the threads of the discourse, to put the information provided on Scalping and Swing into perspective. Actually there is not much to say. Scalping is potentially very profitable, in the best case really very profitable. However, it is also one of the most difficult strategies with which to go to market. If the trader does not have sufficient experience it could even be prohibitive. Therefore, there is nothing left to do but proceed with Swing Trading, net of all the other strategies available to those who want to earn with speculative investment. It is good to remember that the context offers numerous possibilities. It is not necessary for you to become fossilized in a dichotomy between Swing and Scalping, a dichotomy that for many traders is more theoretical than practical. In any case, Swing Trading is for you if you hate high rhythms, situations where it is necessary to decide quickly and under stress, but at the same time you cannot stand very long waits, such as those that long-term traders, or cassettisti (as they are often called) are forced to manage. Whether you are a Trend follower or counter-trend matters little: Swing Trading conceives both approaches.