Most trading strategies are classified into two: swing trading and trend trading. The two strategies are entirely different, but most investors fail to realize how these two techniques can undermine profitability.

Let us differentiate the two.

A trend trader seeks to generate profit by analyzing a stock’s momentum in a specific direction. He enters into a long position when the stock is escalating, but takes a short position when it is plunging. In other words, a trend trader opts for risk in an uptrend or downtrend until the trend changes.

Conversely, a swing trader aims to gain in a stock. He attempts to follow the stock market’s momentum when purchasing stocks using technical analysis. The trader also monitors price trends and patterns, and trail the boundaries of range bound markets, purchasing at support and selling at resistance.

Still confused? The following characteristics may help you figure out the right approach for you.

Trade Frequency

Trend traders administer fewer positions, but retain those for longer time periods. However, swing traders place more positions, but hold those for shorter time periods.

Position Selection

Swing traders hold or short sell securities which are at support or resistance levels, while trend traders possess or short sell securities at its firmest upturns and downturns.

Position Size

Trend traders own smaller positions for longer time frames. Swing traders hold bigger positions for shorter time frames, as well as use leverage more often.

Position Timing

Speaking of timing, swing traders look for the right timing since average gain or loss will be smaller than for trend traders.

Economic Picture

Swing traders are technicals, while trend traders use fundamentals. Swing traders focus primarily on short-term price action, while trend traders monitor economic, political, and environmental events which can influence risk management or position selection.

Entry Strategy

Trend traders are momentum seekers. They either chase strong momentum or wait for a counter trend to reduce risk. Swing traders embrace risk at support or resistance by positioning in the other direction and implementing stops.

Exit Strategy

When stops are touched or profit targets are reached, swing traders exit positions. Trend traders ignore time frame. They own positions until the trend changes course and place stops at the price level indicating the trend change.

Pareto Analysis

Applying the 80-20 rule here, markets trend around 20% of time and spend the remaining 80% for gliding through various trend actions such as trading ranges and pullbacks, testing boundaries. A trend trader favors price rate of change which climbs in trends, but a swing trader prefers declines in trading ranges.