Is Swing Trading More Profitable (better) Than Long-Term Investing? (Overview) (2024)

This is one question that is often asked about the equity market, and everyone wants to know the right answer. Traders and investors have different opinions depending on which side they fall into, but realistically speaking, is swing trading more profitable than long-term investing?

Yes, swing trading could be more profitable than long-term investing if you know what you are doing. With the right skills and dedication, you can beat the market not just in the short term but over long periods of time. However, you must be disciplined enough to stay consistent.

There are many reasons why swing trading is better than long-term investing, and we will discuss some of them in this post. But first, let’s find out what swing trading and long-term investing mean.

Swing trading is a trading style that sets out to profit from the medium-term price moves, which are the up and down price swings on the daily timeframe that normally can last from a few days to a few weeks. Trading is mostly based on technical analysis, with little or no input from fundamental analysis. The essence of swing trading is to milk the individual price swings as the come while avoiding pullbacks, which erode profits. It is possible to trade both the up and down price swings, but beginners should trade only the upswings.

Long-term investing, also referred to as position trading or buy and hold, is a style of trading/investing where the investor buys the asset (stocks or equity index) and holds it for a long period, from several months to many years or even decades. It is mostly based on fundamental analysis, even though some investors use a combination of fundamental analysis and technical analysis.

There are many reasons why swing trading, when undertaken by a skilled and dedicated trader, can yield more returns than long-term investing. These are some of them:

While some will tell you that it is not possible to time the market, a lot of swing traders do just that and have been making good returns for a long time. With good trading strategies, a swing trader can identify a good time to enter the market and ride with the wave. Admittedly, some of the trades may end up losers, but many become winners and make more money to offset the losses from bad trades.

Long-term investing, on the other hand, means that you simply buy and hold, with the hope that over the years, the stock would appreciate enough to make you money.

With swing trading, your money stays in a particular stock for a short time, whether the trade is a winner or a loser. So, it offers you more flexibility with managing your trading capital and moving funds to the stocks that are more likely to make you more money at every point in time.

On the other hand, if you take to long-term investing, your money is tied down in the stock, and if the stock is not performing well, your capital is not being put in good use, as there could have been other stocks where your money would’ve been of better use.

Also read: Swing Trading Psychology: The Perspective of a Successful Swing Trader

Swing trading can be said to be less risky than long-term investing, here is why. In swing trading, you make use of a small stop loss to limit your downside risk, while in long-term investing, you either don’t use a stop loss at all or use a very large stop loss. In other words, you tend to manage risk more actively and preserve your trading capital in swing trading.

A long-term investor is more likely to hold on to a stock that has lost 80% of its value, while a swing trader would have bailed out of the stock at no more than 10% decline. Hence, in situations of sudden and severe market downturns, a swing trader may not be at as much risk as the long-term investor.

As a result of the active risk management in swing trading, swing traders can use a little leverage to increase their position sizes, which can magnify their earning potential. Leverage can also magnify losses, but with good risk management, it can help you improve your profitability.

Swing trading enables you to focus on the market and stay tuned to the happenings in the market, whereas long-term investing tends to be less active because once you’ve bought, you simply hold on to your investment for as long as you planned. As you stay more engaged with the market, you will get to spot more trading opportunities that can make you more money.

With a good trading strategy, risk management, proper position sizing, and dedication, a swing trader can expect a return of 10–30% or more per annum, to be modest, which is better than the S&P 500 Index’s annualized return of about 10% per annum. The reason is quite simple, a long-term investor tends to lose most of its profits in a market downturn and waits for a market recovery to regain the profit, while a swing trader can switch to shorting opportunities.

Swing trading can be more profitable than long-term investing if approached the right way — with a good trading strategy, risk management, position-sizing, and consistency in execution.

What does long-term investing mean?

Long-term investing, also known as position trading or buy and hold, involves holding an asset (stocks or equity index) for an extended period, ranging from several months to many years or even decades. It relies on fundamental analysis and, in some cases, combines technical analysis.

Why is swing trading considered better than long-term investing?

Better Timing: Swing traders can actively time the market using effective strategies, identifying opportune moments to enter and exit trades.
Capital Flexibility: Funds in swing trading are not tied down for extended periods, allowing flexibility to allocate capital to more promising stocks.
Active Risk Management: Swing trading employs active risk management with smaller stop losses, reducing downside risk compared to long-term investing.
Leverage and Position Sizes: Swing traders can use leverage for increased position sizes, potentially magnifying earnings with proper risk management.
Market Engagement: Swing trading keeps traders more connected to the market, enabling them to spot and capitalize on more trading opportunities.

How does swing trading stay connected to the market?

Swing trading encourages active engagement with the market, allowing traders to stay tuned to market happenings and spot additional trading opportunities. This contrasts with the less active approach of long-term investing. In market downturns, swing traders can actively switch to shorting opportunities, preserving profits and potentially capitalizing on market declines. This flexibility sets swing trading apart from long-term investing.