Stock market traders adopt different kinds of trading strategies to try and make profits in the stock market. However, if we broadly categories these trading techniques and think of the most popular ones, we get that is intraday trading, swing trading, and positional trading. In this article, we will highlight the differences between intraday trading and positional trading since the contrast between the two is a stark one. After you go through the “intraday trading vs positional trading” comparison, you will be better fit to select the appropriate approach for yourself.
What is Intraday Trading?
Intraday trading, also frequently referred to as day trading, is the approach that involves the buying and selling of securities, like stocks, within the same trading day. For example, an intraday trader may buy a stock of a company around 9:30 AM, and wait for the price to rise; then, they sell it at around 12:00 PM, on the same day, since they are satisfied with the intraday upward price movement. In other words, intraday traders look to profit from short-term price variations by capitalizing on market volatility—and do not maintain overnight positions.
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What is Positional Trading?
Positional trading, in contrast, is a trading method in which traders hold positions for an extended period of time. This extended period can range from a few days to many weeks to some number of months. Positional traders, unlike intraday traders, are not concerned with short-term market movements. Instead, they concentrate on capturing wider market trends, and hope to profit from long-term price movements.
Intraday Trading vs. Positional Trading: Features and Characteristics
|Extremely short-term time horizon; shares are not held for more than a day.||The time frame could be a medium to long-term one since positional traders hold their positions for several days to even months.|
|Intraday traders may take multiple positions during the day.||Positional traders mainly place fewer trades, just one at times, and wait for large price movements.|
They also tend to deploy large positions of their capital in a single trade.
|They may deploy their capital in smaller chunks and build their positions over time.|
|Intraday traders mainly place their trades after performing adequate technical analysis.||Positional trades utilise both technical and fundamental analysis.|
Benefits of Intraday Trading
Some of the benefits of intraday trading include:
Quick Profits: Intraday trading has the potential to generate large profits in a single trading day.
Reduced Exposure: Intraday traders are not exposed to overnight risks such as unexpected news or market gaps because they settle their positions before the market closes.
No DP Charges: Intraday trading does not ask the trader to pay any DP (depository participant) charges since there is no share delivery involved.
Risks of Intraday Trading
Some of the risks of intraday trading include:
High Stress Levels: The frantic pace of intraday trading may be stressful since traders must make quick decisions and successfully control emotions.
Transaction Costs: Even though there are no charges, other intraday trading is not free from other types of fees and charges, such as brokerage fees and taxes. Thus frequent trading of securities in intraday trading can lead to higher transaction costs.
Volatile Markets: Intraday traders are vulnerable to price fluctuations and swift market reverses, which can result in losses if not effectively managed.
Benefits of Positional Trading
Some of the benefits of positional trading include:
Greater Profit Potential: Positional traders enjoy the prospect to profit from major price movements over a longer period of time.
Less Time Commitments: Positional trading demands less active monitoring than intraday trading, allowing traders to fulfil other obligations—it doesn't require you to stay glued to your trading screen.
Lesser Transaction Costs: Since positional traders make fewer trades, lowering the transaction costs involved with frequent buying and selling.
Risks of Positional Trading
Some of the risks of positional trading include:
Overnight Risks: Traders that hold positions overnight are exposed to the risks associated with nighttime news, world events, or market gaps, which may result in negative price changes.
Emotional Patience: Positional trading demands patience and fortitude in order to withstand short-term market volatility while avoiding emotional responses.
Longer Drawdown Periods: Positional traders may face extended downside periods if the market swings against them, forcing them to wait for the market to reverse in their favor.
Which One Should You Choose?
So, finally, it comes down to the question: Intraday trading or positional trading, which one should you choose? Choosing between intraday trading and positional trading depends on individual preferences, personal circumstances, and the level of trading experience.
For example, you probably would be better off as a positional trader if you have a day job or don’t have sufficient time to dedicate towards trading. However, if you are someone who doesn’t wish to take any overnight risks or who has the skill to trade new setups every trading session could consider positional traders.
At the same time, you can employ both strategies—since the strategies are not mutually exclusive. You could maintain a long-term trading portfolio, and, at the same time, take intraday bets whenever you find suitable opportunities.
In the area of stock market trading, intraday trading and positional trading are two distinct trading techniques. Intraday trading is concerned with short-term price changes inside a single trading day, whereas positional trading is concerned with capturing longer-term patterns over a period of days, weeks, or months.
Each strategy has its own set of advantages and disadvantages. Individual preferences, time availability, risk tolerance, and trading skills all play a role in selecting the best approach. That said, intraday trading is more speculative in nature, whereas position trading requires more thoughtful, indepth research.
Frequently Asked Questions
Yes, you can switch between intraday and positional trading based on your assessment of market conditions and trading objectives. Some traders use both tactics, responding to changing market conditions.
Yes, you can apply technical indicators moving averages and oscillators to intraday trading and positional trading.
It is not essential to fundamentally analyse the company as a positional trader; however, since you hold stocks for longer periods, it will always be beneficial to have a fundamental understanding of company financials and industry trends, and macroeconomic data
Yes, it is always recommended to implement a stop-loss when you are trading. For intraday trading, you must implement a stringent stop-loss, while for position trading, the you can implement a broader stop-loss.
While trading expertise is beneficial, it is not a must to begin either intraday or positional trading. However, a strong understanding of market dynamics, risk management measures, and the chosen trading strategy is required.
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