Intraday Vs Positional Trading: Which One Should You Prefer?

The stock markets have become one of the most sought-after avenues to make profits. Among the numerous strategies aimed at maximising wealth, two commonly used strategies are intraday and positional trading. Here is a detailed analysis of these two strategies along with the critical features of intraday vs positional trading.

Intraday vs Positional trading

While intraday and positional trading strategies exploit profit potential in the stock markets, intraday trading does so by trying to capture the maximum profits during the day. However, positional trading requires investors to hold on to their positions for a more extended timeframe. Since intraday traders do not carry forward their positions to the next day, they are exposed to a lesser risk than positional traders, who hold their positions overnight. Both these strategies can help in cultivating profits or creating losses. Positional trading may backfire if you have bad timing and invest in the wrong stock. Moreover, intraday trading may generate losses if you do not have stop-loss or profit targets.

What is intraday trading?

Intraday trading refers to buying and selling securities on the same day. Intraday traders seek to capitalise on small profit-making opportunities throughout the day and close their positions by the end of the trading day.

What is positional trading?

Positional trading refers to the strategy wherein traders initiate their positions for a longer timeframe, which spans from several weeks to months. In positional trading, the trader typically has a long-term view of the stock.

Advantages of intraday trading

Given below are some of the critical advantages of Intraday Trading.

  1. A regular source of income -

    Although intraday trading carries significant risk, trading daily for a few hours generates a steady income.
  2. Risk -

    One of the most critical benefits of intraday trading is that the investment is not exposed to overnight risk. Intraday traders square off their positions before the end of each trading day. As a result, a drastic turn of events overnight does not influence the trader’s portfolio.
  3. Returns -

    Intraday trading is known to generate monumental returns. Traders can take advantage of rising stock prices in bullish markets or practise short selling in bearish markets.
  4. Lower commission charges -

    Brokers charge nominal commission charges for intraday traders. The brokerage fee on intraday trading is typically one-tenth if standard trading is undertaken.
  5. Liquidity -

    Intraday trading requires trades to settle each day. As a result, the investor’s capital does not get blocked.
  6. High leverage -

    Brokers typically provide high leverage to intraday traders, which helps in enhancing their profits.

Disadvantages of Intraday Trading

Although intraday trading is a powerful strategy to maximise profits, it carries some disadvantages.

  1. Time-consuming -

    Intraday trading requires continuous stock market monitoring to assess profit-making potential.
  2. Insufficient time to formulate strategies -

    Intraday trading requires traders to quickly assess the markets and place their trades immediately to capture profits. They do not get sufficient time to develop well-lit strategies.
  3. Not recommended for beginners -

    Intraday trading requires you to quickly assess market trends and place trades instantly. The trader must carry some experience to analyse markets quickly while making efficient decisions.
  4. Ownership of shares -

    In intraday trading, the ownership of shares is not transferred to the trader.

Advantages of Positional Trading

Here are some of the critical advantages of positional trading.

  1. Risk -

    Positional trading is less risky than intraday trading or swing trading because the investment is made for a longer term.
  2. Analysis -

    Positional trading can generate more accurate results in finding the correct entry and exit points since it considers both fundamental and technical stock analysis
  3. Overnight fluctuations -

    Some significant events can happen overnight that can lead to an instant spike in the prices of securities. Since the trader’s position remains open overnight, they can benefit from such moves.
  4. Lower involvement -

    Positional trading requires less involvement than other techniques such as swing trading or intraday trading.

Disadvantages of Positional Trading

Let us understand the disadvantages associated with positional trading.

  1. Long-term capital -

    Since positional trading requires the trader to hold their investments for a longer period, the strategy requires long-term capital.
  2. Costlier mistakes -

    The cost of making mistakes is higher in positional trading since stop losses are wider than in other trading strategies.
  3. Analysis -

    Positional trading requires skills in assessing the fundamentals of assets, expertise that some traders may not possess.
  4. Sideways markets -

    The benefits of positional trading are limited to upward and downward-trending markets. You cannot benefit from positional trading during sideways markets

Conclusion

Intraday and positional trading are excellent strategies for capturing stock market returns. However, selecting the most suitable strategy depends on factors such as your risk appetite, available capital, time horizon, trader’s skill set and level of commitment. Swing trading is another widely used strategy among traders attempting to cultivate profits from short-term market swings. An in-depth analysis of these strategies combined with a thorough understanding of day trade vs. swing trade can help you select the best-suited strategy.

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