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Traders in the dynamic stock market need to continuously decide: intraday or positional trading? This choice has the potential to alter your trading style, risks, and earnings.
It’s not only helpful but necessary for every trader to understand the differences between these two types of trading.
The purpose of this article is to provide some clarity on intraday and positional trading so that you can make a well-informed decision based on your trading objectives and comfort level with risk. Let’s explore the intriguing trading world and learn how to make the most of these two popular trading styles.
What is intraday trading?
As the name implies, intraday trading entails purchasing and selling securities during the same trading day. The main goal is to make money off of temporary changes in market prices.
Due to the high level of market volatility, one of the main advantages of intraday trading is the possibility of making quick profits. Also, traders can rest easy knowing they would not be exposed to any overnight risk because all positions are closed before the market closes.
Nevertheless, there are hazards associated with intraday trading. Similar to how market volatility can result in rapid gains, it can cause substantial losses. Also, keeping tabs on the market all day is a must for intraday traders, which can be a real pain.
Example:
A trader in India buys 100 shares of a company at ₹1000 each at 10:00 AM. By 2:00 PM, the price rises to ₹1010 per share. The trader sells all shares, making a profit of ₹1000 (₹10 profit per share x 100 shares) in just one day.
The most popular chart intervals used by intraday traders are 15 and 5 minutes. One can tailor the optimal time frame for intraday trading to their specific needs by considering the volume and liquidity of stocks.
What is positional trading?
One kind of trading is positional trading, which is also known as buy-and-hold trading. In this strategy, investors keep their assets in a holding pattern for a long time, sometimes years. Over this longer period, the objective is to capitalise on price fluctuations
Potentially large gains, should the trader’s long-term forecast come true, are one of the advantages of positional trading. Also, since you won’t have to keep an eye on the market all day, it’s less stressful than intraday trading.
The risks associated with positional trading are distinct, though. The longer the duration of a trade, the more capital is required. Furthermore, overnight price gaps can be caused by events that occur during market closures.
Example:
Suppose a trader in India receives a positional call from their broker. The positional call meaning in this context is a recommendation to buy shares of Infosys with the anticipation that the stock price will increase over the next few months due to a major upcoming product launch.
Acting on this positional call, the trader buys 500 shares at ₹900 each. After four months, the price rises to ₹950 per share. The trader sells all the shares, making a profit of ₹25,000 (₹50 profit per share x 500 shares).
Key differences: Intraday trading vs position trading
Here’s a comparison table highlighting the key differences between intraday and positional trading:
| Factor | Intraday trading | Positional trading |
| Risk | High, due to market volatility | Moderate to high, due to overnight risk |
| Investment size | Can be small or large, depending on the trader’s capital | Usually requires a larger capital |
| Duration | Trades are completed within a single trading day | Trades can last for days, weeks, months, or even years |
| Stress level | High, due to the need for constant market monitoring | Lower, as trades are not as frequent |
| Profit potential | Profits are typically smaller but can accumulate over time | Profits can be significant if the long-term view is correct |
Choosing between intraday and positional trading
Several factors should be considered before settling on either intraday or positional trading:
Investment goals: Intraday trading could be a good fit for you if you aiming to make quick money and are willing to trade often. Consider positional trading if you want substantial returns over a longer time frame.
Risk tolerance: Because of market volatility, intraday trading carries a higher risk than overnight trading. Positional trading carries a high degree of risk and has the potential to generate substantial profits or losses in a matter of hours.
Time commitment: Positional trading gives you more leeway than intraday trading, which demands continual market monitoring.
Personal preferences: Your trading style should align with your personality, lifestyle, and financial goals.
Example:
The stock price of the company Reliance Industries Ltd, had a high of ₹2,978.00 and a low of ₹2,927.00 (as of March 11, 2024) indicating the profit/losses for the intraday traders. Whereas the stock price of the same company has come from ₹2438.85 to ₹2928.00 over 6 months (as of March 11, 2024) indicating the profit/losses for the positional traders.
Bottomline
Every trading strategy, whether it is intraday or positional, comes with its own set of pros and cons. Consider your investing objectives, level of comfort with risk, and available time before making a final decision. You need to know your investments inside and out in addition to having a good trading strategy if you want to be successful. Best of luck in the market!
FAQs
Whether positional trading is better than intraday trading depends on individual preferences, risk tolerance, and investment goals. Intraday trading offers potential for quick profits and no overnight risk but requires constant market monitoring. Positional trading can yield significant returns over a longer period and is less stressful, but carries overnight risk and requires larger capital. Both have their advantages and risks, and neither is inherently better. It’s about finding the strategy that aligns with your financial goals and trading style.
Yes, positional trading can be profitable, but it largely depends on the trader’s knowledge, strategy, and market conditions. It allows for significant returns over a longer period as it capitalizes on market trends. However, it requires a larger capital investment and carries overnight risk. Success in positional trading involves thorough research, patience, and a disciplined investment approach. It’s important to note that while profits are possible, losses can also occur. Therefore, risk management is crucial in trading.
The safest type of trading can vary based on individual preferences and risk tolerance. However, long-term trading is often considered safer as it allows for thorough research and avoids the short-term volatility of the market. Options trading is also considered safe due to its risk management potential. Remember, all trading involves risk and requires knowledge and strategy.
The most profitable type of trading can vary greatly depending on individual circumstances and market conditions. For short-term traders, day trading with forex can be more profitable, while for long-term traders, day trading with stocks can yield higher returns. However, it’s important to note that profitability is not guaranteed in any type of trading and depends largely on the trader’s knowledge, strategy, and risk management skills. Always make informed trading decisions.
The best type of trading for beginners often depends on their time commitment, risk tolerance, and financial goals. Stock trading is commonly recommended for beginners as it allows them to get a feel for the market. Swing trading is also a good option as it requires less time than day trading, making it suitable for those with full-time jobs. However, beginners must educate themselves and understand the risks before starting.