Day Trading, Swing Trading, and Long-Term Investing: What’s the Difference?

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When you decide to start stock investing, one of the first things you’ll struggle with is the question of “how long should I hold the stocks?”

When people think of stock investing, they might imagine buying and selling while watching charts every day.

However, there are various styles of stock investing.
Some people finish their trades within a single day, while others hold them for several weeks to months. Furthermore, some people continue to hold shares of the same company for years.

The three most representative styles are as follows:

• Day Trading: In principle, completing trades within the same day

• Swing Trading: Holding for several days to several weeks, or in some cases, months

• Long-Term Investing: Assuming a holding period of several years to over a decade

So, what are the differences between these three?
And which one should a beginner investor choose?

I have personally experienced day trading, swing trading, and long-term investing.
Currently, because I have more time to spend on things other than stock investing, I focus mainly on swing trading and long-term investing.

In this article, I will think about which investment style suits you by organizing the characteristics, pros and cons, required time, and tendencies of the people suited for each.

First of all, why is the investment period important?

In stock investing, even if you buy the same stock, the result changes depending on when you sell it.

For example, suppose a company’s stock price is 1,000 yen.

After purchase, it rises to 1,050 yen the next day.
However, it falls to 950 yen a week later.
It rises to 1,200 yen half a year later.

In this case, the person who sold it the next day made a profit.
The person who sold it a week later incurred a loss.
The person who held it for half a year made a larger profit.

Of course, there is also a possibility that the stock price could be 800 yen after half a year.

In other words, in stock investing, it is not just “what you buy” that matters, but also the timeframe in which you aim for profit that is important.

Also, the information you prioritize changes depending on the investment period.

In short-term trading, stock price movements and trading momentum are important.
In long-term investing, you will place more importance on the company’s performance, growth potential, and financial condition.

1. Day Trading | Completing trades within the same day

Day trading is a trading method where, in principle, you complete the purchase and sale of stocks within a single day.

Buying stocks in the morning and selling them in the afternoon.
Repeating trades several times during the morning.

These types of transactions fall under this category.

The basic rule is not to carry over stocks to the next day.

Advantages of Day Trading

The biggest feature is that, in principle, you do not carry over the risk of stock price fluctuations to the next day or beyond.

For example, if negative news about a company is announced after trading hours, the stock price could drop significantly the next morning.

However, if you have sold all your holdings of that stock within the day, you will not be directly affected by the price drop the next morning.
Also, since you are taking advantage of short-term price movements, another feature is that you do not need to wait for long-term corporate growth.

Disadvantages of Day Trading

On the other hand, day trading also has its difficulties.

First, you need to check stock prices during trading hours.

The regular trading hours for Japanese stocks are weekdays from 9:00 to 11:30 and 12:30 to 15:30.
Because you are buying and selling while monitoring the market during those times, it can be difficult to balance with work or household chores.
Also, short-term price movements are difficult to predict, and delays in judgment can lead to losses.

The more frequently you trade, the more you need to be aware of costs such as trading commissions and spreads.

Who is Day Trading Suited For?

• People who can secure trading time during the day on weekdays

• People who are good at making decisions in a short amount of time

• People who can follow pre-determined stop-loss rules

• People who enjoy analyzing stock price movements

However, just because you fit these characteristics does not guarantee that you will be able to make a profit.

Especially for beginners, the speed of price movements can sometimes be overwhelming.
You want to avoid investing a large amount of capital from the start.

(2) Swing Trading | Aiming for price movements over several days to several weeks

Swing trading is a trading method where you hold stocks for several days to several weeks, or in some cases, several months.

There is no need to trade as frequently as in day trading.

For example, if you predict that the stock price of a company that announced strong earnings will rise over the next few weeks,
you could buy the company’s stock and sell it once it reaches your target price.

Advantages of Swing Trading

Not needing to be glued to the charts for as long as in day trading is an advantage.

Even if you work during the day, you can check charts and news in the evening to plan your trades for the next day.

Also, it is characterized by the ability to easily utilize earnings announcements and industry news for trading decisions, rather than just short-term price movements.

Disadvantages of Swing Trading

In swing trading, you hold stocks overnight or longer.
Therefore, there is a risk that bad news will be announced outside of trading hours.

For example, a stock purchased at 1,000 yen might start trading at 900 yen the next morning.
This is often described as a “gap down.”

Even if you set a stop-loss order in advance, there is no guarantee that you will be able to sell at your intended price.
Also, just because the holding period is several days to several weeks does not mean you will always make a profit.

Who is Swing Trading Suitable For?

• People who are busy with work or other commitments during the day

• People who find it difficult to trade multiple times every day

• People who want to use earnings and news for investment decisions

• People who want to analyze price movements over several days to several weeks

It is a style that is easy to consider for those who cannot secure as much trading time as day traders, but want to trade more actively than long-term investors.

(3) Long-Term Investing | Waiting for corporate growth over time

Long-term investing is an investment method that assumes holding assets for several years to over a decade.

Rather than short-term fluctuations in stock prices, it emphasizes a company’s medium- to long-term growth, profits, and dividends.

For example, it involves purchasing companies expected to grow in the future and holding them for 5 or 10 years.
Also, long-term accumulation of investment trusts is a typical example of long-term investing.

Advantages of long-term investing

The fact that there is no need to buy and sell frequently in response to short-term price movements is a major feature.

Instead of chasing daily stock prices, you continue to hold while periodically checking the company’s financial results and business environment.
Also, by reinvesting profits, you may be able to utilize the power of compound interest.

The Financial Services Agency also introduces long-term, cumulative, and diversified investment as a basic approach to asset formation.
However, holding for the long term does not guarantee a profit.

Disadvantages of long-term investing

In long-term investing, you will be managing your invested funds over a long period.

During that time, there is a possibility that the company’s competitiveness will decline or its performance will deteriorate.
Also, stock prices may drop significantly, and it may take years to recover.
In some cases, they may never return to their previous price levels.

Long-term investing does not mean that you don’t need to check anything after buying.

Especially in the case of individual stocks, it is important to periodically check whether the reason you invested still holds true.

Who is long-term investing suitable for?

• People who do not want to spend time on daily trading

• People who are thinking about medium- to long-term asset formation

• People who want to watch over a company’s growth over time

• People who do not want to be swayed by short-term price movements

However, even with long-term investing, losses due to stock price declines can occur.
Make sure not to invest money needed for living expenses or money you plan to use in the near future.

What is the biggest difference between the three investment styles?

I will summarize the content so far for investment beginners.

Differences in Holding Periods

Day Trading
From a few minutes to a few hours. In principle, trades are completed within the same day.

Swing Trading
From a few days to a few weeks. In some cases, positions are held for several months.

Long-Term Investing
From several years to over a decade. Focuses on the medium- to long-term growth of companies or markets.
*These are general guidelines, and there is no strictly unified definition for these timeframes.

Differences in Time Required

Day Trading
Requires time to check the market during trading hours.

Swing Trading
Requires a certain amount of time to check every day, but you do not need to watch the screen throughout the entire trading session.

Long-Term Investing
Daily trading decisions are fewer, but periodic status checks are necessary.

Differences in Information Prioritized

Day Trading
Stock charts, trading volume, order books, short-term supply and demand, etc.

Swing Trading
Stock charts, earnings reports, news, market trends, etc.

Long-Term Investing
Corporate performance, financials, growth potential, dividends, business environment, stock valuation, etc.
It is not that you should only look at one of these, but the priority of information changes depending on the investment period.

Which investment style is the most profitable?

At this point, you might be wondering,
“In the end, which one is the most profitable?”
is a question that comes to mind.

However, the size of the profit is not determined solely by the holding period.

There are people who make profits with day trading, and there are those who incur losses.
The same applies to swing trading.
Even with long-term investing, the results vary greatly depending on the companies or investment products purchased.

Also, the necessary knowledge, experience, transaction costs, and acceptable risks differ depending on the investment style.

Therefore, what beginners should think about first is not
“Which one seems the most profitable?”
, but rather
“Which one can I continue without strain in my daily life?”
I believe that is the question.

The reason I currently focus on swing and long-term investing

I have experienced all of them: day trading, swing trading, and long-term investing.
Each has its own appeal, and there are different things to learn from each.

In day trading, I gained experience in considering short-term price movements and timing for buying and selling.

In swing trading, there is the fun of combining earnings reports, news, and charts to make trades.

In long-term investing, you can carefully consider a company’s business content and future growth potential.

Currently, I have more time to spend on things other than stock investing than before.

Therefore, I have moved away from day trading, which requires watching the market continuously during trading hours, and focus mainly on swing trading and long-term investing.
This is not because day trading is bad.
It is because swing and long-term investing suit my current lifestyle better.

The time available for investing changes depending on work, family environment, hobbies, and so on.
An investment style that was possible before may no longer fit your current life.
At that time, it is okay to change your investment style.

If you are a beginner in investing, where should you start?

If you are about to start investing, I recommend first considering the time you can dedicate to it.

People who cannot find time during the day on weekdays

If you cannot check the market during the day due to work or other reasons, day trading might be difficult.
Swing trading or long-term investing might be easier to incorporate into your life.

People who do not want to spend much time on daily trading

If your goal is asset formation, there is a way to think about long-term, installment, and diversified investing.

By using investment trusts, you can also perform diversified investing without having to select individual companies one by one.

People who want to study stock price movements

If you are interested in short-term price movements, there are ways to learn through small-amount cash transactions or mock trading that does not use actual funds.

There is no need to use margin trading or high leverage from the beginning.

People who like corporate analysis

If you like reading financial statements and researching corporate growth, you might find swing trading or long-term investing interesting.

However, liking analysis and being able to make a profit are different things.

Let’s think carefully about investment amounts and risk management.

Is day trading dangerous for beginners?

Day trading itself is not necessarily dangerous.
However, because you buy and sell multiple times in a short period, it requires quick decision-making and loss management.

One thing to be especially careful about is margin trading.

Margin trading is a mechanism where you borrow funds or stocks from a brokerage firm to trade.

While it allows you to trade with more than your available capital, it also carries the potential for larger losses.
If the market changes suddenly, you may incur losses that exceed the collateral you have deposited.

Day trading does not equal margin trading.

You can also day trade using cash transactions. However, cash transactions have restrictions on trading and settlement using the same funds.

As a beginner, it is important not to start margin trading without fully understanding how the mechanism works.

Can I combine swing trading and long-term investing?

Of course, you can combine them.

For example, you could use a portion of your investment funds for long-term investing and another portion for swing trading.
In long-term investing, you hold assets with the expectation of corporate growth and dividends.
In swing trading, you aim for price movements over a period of several days to several weeks.

However, what is important here is not to confuse your investment objectives.

When a stock you bought for swing trading falls in price,
you might think, “It will recover someday, so I’ll change it to a long-term holding.”

However, that is a different decision from your original investment plan.

Of course, you might re-analyze the company and find a rational reason to hold it long-term.
However, you need to be careful about extending your holding period just because you don’t want to realize a loss.

It is important to think about
why you are buying,
how long you will hold it,
and under what conditions you will sell
before you start.

Which investment style is NISA suitable for?

NISA is a system where profits obtained from investments that meet certain conditions are tax-exempt.

It is known as a system that is well-suited for long-term asset formation, but you can also invest in eligible listed stocks and other assets within the growth investment quota.

However, losses incurred in a NISA account cannot be offset against profits in taxable accounts, nor can they be carried forward for tax deduction purposes.

Also, even if you repeat short-term trades, the annual investment quota for the sold portion does not reset within the same year.

Therefore, with day trading, which involves frequent buying and selling, you need to fully confirm the institutional characteristics of NISA.

One approach is to use NISA primarily for long-term investments while conducting short-term trades in a taxable account, using them differently depending on your goals.

Once You Decide on an Investment Style, Think About Your Securities Account

After reading this far, some of you may have thought,
“Long-term investing seems right for me”
or
“I’m interested in swing trading.”

To actually start stock investing, you need a securities account.

Securities companies differ in their trading tools, available products, fees, and small-amount investment services.

For example, if you are someone who wants to buy small amounts of Japanese stocks, whether or not there is a service that allows you to purchase from a single share becomes a selection criterion.

Also, if you are considering long-term installment investments, you will want to check the NISA and investment trust products offered.

In a previous article, we introduced three securities companies for beginners: Rakuten Securities, SBI Securities, and Matsui Securities.

I want to start stock investing, but what should I do first? | Comparing 3 Securities Accounts for Beginners

If you don’t have a securities account yet, start by comparing the features of each company.

Rakuten Securities
For those interested in utilizing Rakuten Points and linking with various Rakuten services.

[Click here to open a Rakuten Securities account]