Day Trading vs Swing Trading – Which Is Better For Forex Prop Firm Trading

  • November 7, 2022
day trading vs swing trading

There are many different ways to trade the forex market, with more strategies and methods than ever before. Two of the most popular methodologies are Day Trading and Swing Trading. These refer to the length of time you’re active in trades. Both Day Trading and Swing Trading have their pros and cons, depending on your trading strategies, lifestyle factors, and what you’re looking to achieve from forex trading.

Although one is not better than another, as a newbie trader, I’d recommend sticking to Swing Trading, rather than dabbling in Day Trading.

In this article, we will look specifically at prop firms and explain whether it’s best to Day Trade, or Swing Trade if you’re wanting to become a funded trader! Let’s get into it…

Day Trading Vs Swing Trading

Before we look at the pros and cons of both forms of trading, it’s important to be fully aware of what these styles actually mean. I see newbie traders seemingly very confused about the difference between the various trading styles. Day trading is where you, the trader, buy or sell leveraged products and exit the position within a single day of trading. This means you rarely hold positions overnight or over the weekend. You’ll typically see Day Traders profiting from very small moves in currency prices.

Swing trading is where you buy or sell a leveraged product and hold that trade for over one day, with the hope of profiting from a larger price movement than Day traders would do. In simple terms, if you’re opening and closing a trade within one day, you’re most likely day trading. If you’re holding on for much longer, you’re most likely swing trading.

So, which of these styles is better for prop firm trading?

The Pros – Day Trading

There are some pros of day trading that make it the most popular trading style amongst retail investors around the world…

  • No patience is required. As a day trader, you don’t need to sit and hold out for your profits for 6 months – you’re able to get into trades and out of trades within a few hours which is much more satisfying.
  • High frequency of trading opportunities. Day traders typically see at least one trade every day within the markets.
  • You get to ‘feel like a trader’. As you’re constantly watching profits, losses, and the charts, you feel like a real trader. Traders that are less active in the markets and have less open positions might potentially feel more like investors, rather than active traders.
  • Potentially higher profits. If you’re able to day trade profitably, there’s no doubt in my mind that you’ll make more profits than swing traders. Due to the way compound interest works, you’ll be much better off as a day trader! However, I wouldn’t recommend it!

The Pros –Swing Trading

My personal favorite when it comes to trading styles. Let’s take a look at some of the pros…

  • Little time invested. Whereas day traders need to be in the markets every day, swing traders can go days without checking the charts – this works perfectly for those with a family or balancing jobs.
  • No small fluctuations. By focusing on large moves in the markets, you can ignore all of the overwhelming noise that retail traders usually have to deal with.
  • Thinking longer term. As your trades are longer term, you typically think longer term as well – this is a great trait to have as an investor/trader.
  • Less likely to strategy hop. If you’re staring at the charts all day, every day, it’s human nature to start recognizing things and want to change your strategy. This is a dark hole to go down and something traders get crippled with!
  • Less likelihood of human error. With hours to analyze trades, rather than minutes, you’re much less likely to see any kind of human error whilst swing trading.
  • Technically, easier. Due to the lack of human error and lack of stress associated with swing trading, coupled with the longer-term moves/no fluctuations, swing trading has a higher success rate than day trading!

The Cons – Day Trading

Whilst there are a lot of pros for trading this way, there are also a lot of cons that need to be considered before you take on your prop firm funding…

Everyone seemingly loves day trading, however, there are a lot of cons you need to be aware of…

  • Very low chance of success. It’s said that over 75% of day traders lose money in the markets as this is one of the hardest ways to trade any market.
  • Huge time commitment. When day trading, you need to be constantly checking on the news and the markets. This leads to traders needing to work part-time or even become full-time traders before they’re ready, just to keep up with the demands of day trading.
  • Requires rapid analysis. As the markets move so fast on the lower time frames, you need to be able to perform complex analysis, under pressure.
  • The drawdown can be large. Trading frequency and volume tend to be much higher with day traders, meaning you’ll have the possibility of taking 5-10% drawdowns in a single day/week if you’re running the standard 1% risk per trade model that most retail traders work to. For tips on managing drawdown in prop firm challenges, have a read of our new article!
  • Hindsight analysis. As the markets move so fast for day traders, you’ll often lose a trade and then realize something was wrong, after the fact. This eats away at day traders and causes them to change their trading strategies, constantly.
  • Shiny ball syndrome. This is something that most retail day traders are guilty of… constantly changing their forex trading strategies each week after taking a few losses.

The Cons – Swing Trading

Now we’ve looked at the large list of cons for day trading, where does swing trading fall short?

  • Low frequency of opportunities. Swing traders typically don’t see many trades coming, especially compared to scalpers and day traders. Whilst this is a negative, most of the trades coming for day traders will be invalid against their trading plans and they’ll spend a lot of wasted time on these setups.
  • Longer timeframe to compound. By the laws of compounding, you’re better off seeing small profits coming in frequently than one large profit every few weeks. This leads to why it can take longer to compound a trading account with swing trading, than day trading. If you’re curious about realistic forex returns, have a read here!
  • Swap fees. As you’ll be holding trades for a long period of time, you’ll accrue swap fees. These could be positive or negative, depending on the currency pair you’re trading. These fees are still going to be negligible in the grand scheme of a successful trade.
  • Requires patience. Swing trades can be left open for months at a time so you need to be able to execute a huge level of patience, even when you see large floating profits in your MT4 terminal.

We’ve recently published a full guide on how to get a funded account as a swing trader. It may be worth a read!

Trading Around Your Lifestyle

One of the most important aspects of building momentum in any facet of life is to do something that molds easily to your lifestyle. To create the least possible chance of failure, you need to ensure that you’re easily able to trade and manage your positions in the markets without having too much difficulty or letting it affect your normal daily life. For instance, I work full-time and trade alongside. It would be impossible for me to be a day trader when I’m in meetings for 6-8 hours every day. I’d never have a chance to check the market movements or manage my risk in trades. However, I’m always around at 10 pm each night. This is when the daily candle closes here in the UK. This means I’m easily able to trade the daily time frame and swing trade the markets without it affecting my life in a negative way. I know a successful fund manager that also applies this process. He makes himself ready for the charts every 4 hours, day and night, so he sits on the markets for about 1 hour per day, spread across the 24-hour period. If you’re looking to be in forex trading for the long haul, make sure it works for you and your life – don’t make too many sacrifices!

Choosing A Prop Firm That Suits Your Trading Style

Now you know the pros and cons of the various trading styles, it’s time to choose a forex prop firm that suits your chosen style. This is really important and often overlooked. I, as a profitable swing trader, would struggle to ever work with a prop firm that has a 30-day challenge and requires a minimum profit threshold each month. Some months I make a profit, and some months I’m flat by the end of the month.  

So, what do you need to be looking for…

Swing Traders – You need to find a prop firm with no maximum trading days, a scaling plan, overnight holding, weekend holding, and live trading capital. For swing traders, I’d recommend checking us out at Lux Trading Firm. We’ve funded swing traders around the world with live trading capital!

Day Traders – You’d want to find a prop firm with good leverage, capital scaling, realistic drawdown threshold, strong profit share, and real trading capital. Again, it’s worth checking out Lux Trading Firm as no other firms in the industry are currently offering real trading capital.

Regardless of what trading style you choose to use, you need to create a trading plan. Have a read of this resource, detailing how to create a forex trading plan for prop firm trading!

In Conclusion – What Is The Best Trading Style To Pass A Prop Firm Challenge?

In summary, the best trading style to pass a prop firm challenge is the style that suits your lifestyle. For many professionals and busy folks, this is going to be swing trading. Although day trading seems like it can be much more lucrative, which it can, it’s much harder to succeed in and has a much higher failure rate than swing trading. Likewise, although swing trading seems like a much slower alternative, it’s easier to succeed in this space and you won’t have to sacrifice your life to do so – a win-win!

Are you looking to take on a funded trading account? Work with Lux Trading Firm now!