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Position trading and swing trading are two prominent trading strategies that you can use to access the markets. Both methods provide market opportunities as you trade, but only if you understand their approaches.
Here, we’ll look at some similarities and differences and help you determine which can be more useful for your situation.
Key Points
- Position trading suits those preferring long-term trades based on fundamental analysis, with minimal risk and leverage, and lower trading costs.
- Swing trading is ideal for those who want short to medium-term trades, are comfortable with higher risk, and use technical analysis after market hours.
- While both strategies can be applied across various markets and require a long-term approach, swing trading involves more frequent transactions and demands more time investment than position trading.
Position Trading vs. Swing Trading
Position trading is an option for you if:
- You’re looking to make trades that last long periods (several months to years)
- You have a strong bias towards fundamental analysis
- You prefer making long-term investments
- You’re averse to high-risk trading
- You prefer trading with minimal leverage
- You want a trading style with the least commissions and fees on trades
Swing trading is an option for you if:
- You prefer opening trades that last between a few days and a few months
- You want to trade after market closure
- You prefer using technical analysis
- You have an appetite for relatively high risk
- You don’t want your capital locked away for extended periods
Similarities Between Position Trading and Swing Trading
Position trading and swing trading have some things in common. Here are a few of the similarities.
Both Trading Styles Have a Strong Bias Toward Fundamental Analysis
Both swing and position traders rely on fundamental analysis at some point to make decisions about going long or short.
Whether you’re a swing or position trader, you’ll understand from conducting fundamental analysis of the assets you’d like to trade. Take, for example, trading stocks of major companies. You can look at fundamental indicators like:
- Projected Earnings Growth
- Price to Book Ratio
- Return on Equity etc[1]
You can also look at other fundamental drivers like inflation, government policy, and political stability, which can affect the markets.
Both Strategies Can Work in Any Market
Swing and position trading are flexible strategies that work across markets and timelines. You can use these two strategies no matter the instrument you’re trading.
Both Are Relatively Long-Term Trading Strategies
Unlike day trading, swing and position trading are long-term trading strategies. Swing trades can range between days and weeks, while position trades last much longer, spanning months and years.
That also means you’ll get into fewer positions during these periods as you attempt to create trading opportunities from any position you’re holding. While you may monitor charts and price movements, your trades will have a long-term bias.
Differences Between Position Trading and Swing Trading
There are several differences between position trading and swing trading. Here is the difference between the two trading styles.
Trading Frequency
As a trader, position trading lets you place trades for long periods. You lock in your capital on a trade over months or years by taking a position trade, and you may rarely change your position. You’ll trade more frequently with swing trading. Although you may also take months with this trading style, you’ll open and close positions more times than you would as a position trader[2].
Time Investment
Swing trading requires plenty of your time studying charts, back testing, and monitoring overall market trends [3].
You’ll need to monitor your trades daily and sometimes after several hours. Since swing trading is more unpredictable, you may have to change your strategy depending on market movements.
That means you’ll spend more time getting into and out of positions, unlike position trading.
With position trading, you don’t feel the effects of short-term trading. Once you take a position, you can potentially monitor it for progress every few weeks or months. That may give you time to focus on other activities that do not involve trading.
Transaction Volumes
Compared to position trading, swing trades contain more transactions within the same period a position trader would place their trades. You can open or close new trades with swing trading as you see fit.
With position trading, once you place a trade, you may await its final result after a few months or years.
Trading Opportunities
Swing trading may offer you more trading opportunities than position trading.
For instance, once you get into a long or short position, you’ll rarely divert your capital to other investments. However, swing trading takes advantage of short-term price movements, much like day trading.
That means you have more trading opportunities across different asset classes.
Choosing Between Position Trading and Swing Trading
Both position trading and swing trading have advantages and disadvantages. So, how do you know which trading style is ideal for you? Here are considerations to make when choosing a trading style.
Access to Capital
The amount of capital available in your account can help you determine which strategy to use. Although this rule is not hard and fast, most position traders have and use vast capital[4].
On the other hand, swing trading can work with a lower capital amount. Depending on your broker, you can start with as little as $1,500 or less as capital.
Emotional Management
Under normal circumstances, it can be more stressful to swing trade than to trade in positions. Swing trading requires better emotional management, especially when you experience drawdowns or lose trades. Since you’d deal with several trades within weeks, you need better emotional management.
Although emotional management is still essential with position trading, less stress is involved. Position trades take longer to mature, and you have less emotional instability as a result.
Fundamental vs. Technical Analysis
Although both swing and position traders may find fundamental analysis useful, many swing traders tend to use technical analysis[5]. Swing traders often use momentum and trend indicators to take advantage of short-term price movements in the markets.
Risk Appetite
Swing trading has a higher risk profile than position trading. That means you can potentially make gains on invested capital. However, you also face the risk of massive losses if you don’t use proper risk management strategies.
On the other hand, if you’re looking for relative stability, position trading offers may offer a more suitable opportunity. Price moves over months tend to be stable. You can enjoy some level of predictability in the markets.
Final Thoughts
Both position and swing trading offer opportunities. Depending on your risk appetite, you may prefer one strategy over the other.
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References
- “Top 10 Fundamental Analysis Indicators For All Investors – Investor Academy”. Investor Academy . https://investoracademy.org/top-10-fundamental-analysis-indicators-for-all-investors/ . Accessed 16 May 2022.
- “Day Trading Vs. Swing Trading”. The Balance . https://www.thebalance.com/day-trading-verus-swing-trading-4134456 .Accessed 16 May 2022.
- “What Is Swing Trading?”. Investopedia . https://www.investopedia.com/terms/s/swingtrading.asp . Accessed 16 May 2022.
- “What Is Capital?”. Investopedia . https://www.investopedia.com/terms/c/capital.asp . Accessed 16 May 2022.
- “Candlesticks and Oscillators for Successful Swing Trades”. Investopedia . https://www.investopedia.com/articles/trading/06/swingtrades.asp . Accessed 16 May 2022.
