What is day/swing trading?

Online definition from Wikipedia.org.

Day trading is speculation in securities, specifically buying and selling financial instruments within the same trading day. Strictly, day trading is trading only within a day, such that all positions are closed before the market close for the trading day. Many traders may not be so strict or may have day trading as one component of an overall strategy. Traders who participate in day trading are called active traders or day traders. Traders who trade in this capacity with the motive of profit are therefore speculators.

Some of the more commonly day-traded financial instruments are stocks, options, currencies, and a host of futures contracts such as equity index futures, interest rate futures, and commodity futures.

Day trading was once an activity that was exclusive to financial firms and professional speculators. Many day traders are bank or investment firm employees working as specialists in equity investment and fund management. However, with the advent of electronic trading and margin trading, day trading has become increasingly popular among at-home traders.

This is great explanation for those of us who are seasoned, but what about everyone else. I like to keep things simple and associate it with everyday events which makes it that much easier for the average person to understand.

Swing trading is a speculative trading strategy in financial markets where a tradable asset is held for between one and several days in an effort to profit from price changes or ‘swings.  A swing trading position is typically held longer than a day trading position, but shorter than buy and hold investment strategies that can be held for months or years.

The type of trader you are will be determined by the amount of money in your brokerage account and what your overall investment goals are.

If you have less than $25 k in your brokerage account, you are limited to 3 day trades within a 5 day rolling period when using a margin account.  This mean that you can buy and sell a stock on the same day (which is considered a round trip) 3 times within a 5 day period.  If you make more than 3 day trades within a 5 day rolling period, you will be flagged as a pattern day trader (PTD) and will be required to bring your account balance to a minimum of $25 k.  Until this has been satisfied, you will be restricted from day trading and cannot buy and sell a stock on the same day. You can buy stock(s) but will need to wait the next following day to sell the stock(s).

These restrictions do not apply when using a cash account. You don’t have to worry about keeping track of 3 day trades within a 5 day rolling period or being flagged as a pattern day trader (PDT). Your trades will only be limited to the amount of cash available in your account

I provided a comparison chart below of a cash account vs a margin account which summarizes the pros and cons of each account type.

Cash account vs Margin account

The best away to avoid being flagged as a pattern day trader (PDT) is to make sure you following the rules of sticking to 3 day trades within a 5 day rolling period.  Another good way to avoid being flagged is to buy the stock one day and sell the next day or just  open up another brokerage account.  This will give you a total of 6 day trades within a 5 day rolling period.  But if you are flagged as a pattern day trader (PDT) simply because you made a mistake by not keeping track of your trades, you call  your broker and ask for forgiveness and they can reset the round-trip counter.  Please note that this can only be done once for the life of the account and usually takes 24-48 hours.

TD ameritrade has made it very easy for you to keep track of how many round-trips you execute within a 5 day rolling period.  Both the Thinkorswim platform and the mobile app have a round-trip counter as shown below that will keep track for you so you don’t have ever have to guess.

From your PC         

The “Day Trades Left” counter will be located under Account Info section in the top left corner      

thinkorswim (TOS)

From your Android

Navigate to All Accounts -> Balances. Scroll down and you will see the “Day Trades Left” counter

thinkorswim (TOS) mobile

                TD Ameritrade mobile

From your Apple iPhone

                Thinkorswim mobile

                TD Ameritrade mobile

                                Navigate to Accounts -> Balances. Scroll down and you will see the “Round Trip” counter

My definition

It’s an opportunity to make money from anywhere in the world, buying stocks at a discounted price and selling them back at a higher price for great gains. This can be achieved by using both technical and fundamental analysis.  There is no one indicator that will paint the picture of when to buy or sell a stock.   Once you can determine what type of trader you are, then over time you will figure out what tools best suit your trading tool box.

Take a look at the example I provided below; I am pretty sure you can relate.

Ex. Everyone likes to buy on Black Friday and Cyber Monday because the prices are cheaper. This creates a perfect opportunity to buy at a discounted price and sell and it back at a retail price just before Christmas. It is a simple concept, buy low and sell high which equals profit.  Yes, it is easier said than done, but there are key tools which you can use to help make a better decision when to enter and exit a stock.

There is no right or wrong way to trade.  From my experience, its really about finding what works for you because everyone is different.  There are a boat load of technical indicators and tools available to make you a better trader, but I would say only choose a handful of them to prevent overloading your brain with too much info which may cause analysis paralysis.  After multiple years of trading I decided to switch up my strategy and started scalping which is pretty much getting in and out of a stock for quick profits.  The trade can range anywhere from a couple of seconds to a couple of minutes.  This help to eliminate the time it takes to research and find the next possible trade setup based off technical analysis.  Focus on the stocks that are already moving up and scalp them.  With the right account size, you can make some really good money just scalping.  I normally stick with scalping stocks that are $5 and below with a minimum share size of 5k shares.  This ensures that every .01 move up on the underlying stock will net me $50 in profit.  If my share size was 10k shares, this would net me $100 every .01 move up on the underlying stock.  This strategy will not work for everyone but remember its all about find what works for you.