Every stock market investor has a distinct investment objective, time horizon, investing capability and intent behind investing money in the markets. Depending on these factors, there are different approaches that one can take for stock market investments. Some of the commonly known ways of trading include long-term investment, intraday trading, and swing trading.
Each of these methods of stock market investment can offer different results across different time periods. Here, we will explain these concepts in detail and highlight the key differences between them for investors to carefully weigh them against their financial goals.
What is long-term investing?
Long-term investing in stock markets involves buying stocks with an intention to remain invested in them for a long period. This could generally be five years or more. It’s often used by investors to fetch meaningful returns from the stock markets. A long-term investment strategy requires investors to identify stocks that can give the desired results against a long-term commitment in the company. Long-term trading or investing is based on the delivery-based trading method in stock markets since investors have to take the delivery of stocks in their Demat accounts.
Meaning of intraday trading
Intraday trading is buying and selling securities, such as stocks, daily without taking overnight ownership of these. Since both buying and selling of security happens within the trading hours of a stock exchange, there is no delivery of stocks required in the investor or trader’s Demat account. Intraday orders in India are generally placed between 9:30 am and 3:30 pm.
Understanding swing trading
Swing trading is a type of trading strategy in which security, such as a stock, is held for a time period that could range from a few days to a few weeks. This strategy involves an investment period that is longer as compared to intraday trading but shorter as compared to long term investing. The objective of swing trading is to make the most of a potentially large stock price move.
Key differences and factors to consider while choosing between long-term, intraday, and swing trading
One of the common factors that differentiate long-term intraday and swing trading from each other is the time involved. Long-term investing aims to build wealth over a longer period through careful portfolio construction. Intraday trading requires a trader to buy and sell shares frequently within a trading day. Since this is very short term, investors aim to earn higher profits through price fluctuations. Swing trading is somewhere between long-term and intraday trading as far as investment timelines are concerned.
The table below showcases some of the main differences between these three types of trading.
|Long-term||Intraday trading||Swing trading|
|Holding period||5 years or above||Few hours||Few days, weeks or months|
|Capital appreciation||Long-term capital appreciation||Exit with price rise||Short to medium term capital appreciation|
|Risks||Relatively low||High risk||Medium to high risk|
|Skills required||Investors should be comfortable with studying companies through fundamental analysis||Investors or day traders should have technical analysis expertise to profit from this type of trading||Investors should be able to use both fundamental and technical analysis to select the right stocks|
|Cost||Long term trading generally involves lower costs since a single asset or position is held for many years thereby resulting in lower brokerage expenses or asset turnover cost||Since an intraday trader carries out multiple transactions within a trading day, a higher brokerage or commission is involved||Swing trading may attract higher brokerage as compared to long-term investing but lower than intraday trading depending on the frequency of asset churn in the portfolio|
|Stock selection||Long-term trading requires one to carefully pick stocks that have the potential to grow and deliver good long-term returns||Intraday trading focuses on quick returns within the trading hours of a given trading day. Therefore, stocks that have higher volatility are identified to exploit price movements for profits||Swing trading involves a combination of careful stock selection through a study of company fundamentals while also studying the price charts for short-term movements to gain profits|
|Professional approach||Long-term investing can be done by anyone and not necessarily by professional traders||Intraday trading requires a substantial time commitment for constantly monitoring price movements. Therefore, this is mostly done by professional traders||Swing trading is done by both professional and non-professional traders or investors|
Which is the right approach for you – long-term, swing or intraday trading?
Choosing the right trading approach is an important decision that should be based on your individual risk tolerance, goals, and preferences. Here are some key factors to consider when making your decision:
- Risk tolerance: How much risk are you comfortable with? If you are risk-averse, then long-term trading may be the best approach for you. If you are more comfortable with risk, then swing or intraday trading may be a better option.
- Goals: What are you hoping to achieve with your trading? Are you looking to build wealth for retirement, or are you looking to make a quick profit?
- Preferences: Do you have the time and resources to dedicate to day-to-day trading? If not, then long-term or swing trading may be a better fit.
Once you have considered these factors, you can start to match trading styles with your personal preferences. Long-term trading is a good option for investors who are looking to build wealth over time. Swing trading is a good option for investors who are looking to make profits from short-term price movements. Intraday trading is a good option for investors who are looking to make profits from very short-term price movements.
Based on personal financial needs and investment philosophies, investors can choose to be long-term investors, day traders or swing traders. However, the objective is common, to invest money in stocks and make profits by identifying the right time of exit. Investors who are new to the stock markets should ideally avoid intraday or swing trading as these are riskier when compared to long-term investing. Intraday trading and swing trading, however, offer umpteen profit-making opportunities that require one to give sufficient time to studying and tracking price movements.
To invest in the stock markets, you need to have a Demat and trading account with a registered broker or broking platform. It is also important to have some understanding of the stock markets before investing in them.
Yes, there is no restriction on being an intraday trader along with making long-term investments in stock markets.
Fundamental analysis involves analysing a company’s potential to fetch profits by considering factors like business environment, financial standing, etc. It requires the usage of both qualitative and quantitative factors surrounding a company. This analysis allows an investor to assess whether he/she should invest in the company.
Swing trading involves the usage of technical analysis to chalk out the potential price movements based on which stock investment decisions can be taken. This is done by looking at the historical performance charts.
There is no minimum amount required to invest in stock markets as such. The amount to be invested depends on the price of the stock selected and the quantity that one is willing to buy.