• Feb, 2024
• By SmartBulls Team

Intraday Vs Positional Trading

In the world of financial markets, two prominent trading methodologies stand out: intraday trading and positional trading. While both aim to capitalize on market movements, they diverge significantly in terms of their time frames, objectives, strategies, risks, and rewards. Let's delve deeper into the nuances of each approach, explore their characteristics, and understand how they impact traders.

Intraday Trading: Seizing Short-Term Opportunities

Intraday trading, also known as day trading, involves buying and selling financial instruments within the same trading day. The primary objective of intraday traders is to profit from short-term price movements and intraday volatility. Their focus is on making quick profits within the confines of a single trading day.

Example: An intraday trader purchases 100 shares of Company A at Rs. 200 per share in the morning and sells them at Rs. 210 per share before the market closes, securing a profit of Rs. 1000.

Merits of Intraday Trading:

1. Quick Profits: Intraday traders have the potential to generate profits within a short span, leveraging rapid price movements.

2. Limited Overnight Exposure: By closing all positions before the market closes, intraday traders avoid overnight exposure to market risks.

Demerits of Intraday Trading:

1.High Risk: Intraday trading involves higher levels of risk due to the fast-paced nature of trading and potential exposure to intraday market volatility.

2. Continuous Monitoring: Traders need to actively monitor market movements throughout the trading day, demanding constant attention and availability.

Positional Trading: Riding the Long-Term Trends

Positional trading, in contrast, entails holding positions in financial instruments for an extended period, ranging from several days to weeks, months, or even longer. Positional traders aim to capture larger market trends and benefit from significant price movements over a more extended timeframe.

Example: A positional trader identifies an upward trend in the stock of Company B based on fundamental analysis and holds onto the stock for several weeks as it continues to appreciate in value.

Merits of Positional Trading:

1. Capturing Long-Term Trends: Positional traders have the opportunity to profit from significant market trends and substantial price movements over an extended period.

2. Flexibility: Positional trading allows traders to take a more relaxed approach, as they do not need to constantly monitor market movements throughout the trading day.

Demerits of Positional Trading:

1. Higher Overnight Risk: While positional traders avoid intraday volatility, they are exposed to higher overnight and long-term market risks, which can lead to larger losses if the market moves against them.

2. Longer Holding Periods: Positional trading requires patience and discipline, as traders need to hold onto positions for an extended period to capture larger market trends.

The Difference between Intraday and Postional Trading

1. Time Frame:

Intraday Trading: Intraday traders buy and sell financial instruments within the same trading day, closing all positions before the market closes.

Positional Trading: Positional traders hold positions for a more extended period, ranging from a few days to several weeks, months, or even longer.

2. Trading Objectives:

Intraday Trading: Intraday traders aim to profit from short-term price movements and capitalize on intraday volatility. Their focus is on making quick profits within a single trading day..

Positional Trading: Positional traders aim to capture larger market trends and benefit from significant price movements over a longer period. They seek to generate substantial profits by holding positions for an extended timeframe.

3. Trading Strategies:

Intraday Trading: Intraday traders rely on technical analysis, chart patterns, and short-term indicators to identify short-lived trading opportunities. They often use strategies like scalping, momentum trading, and breakout trading to exploit intraday price fluctuations.

Positional Trading: Positional traders employ a mix of fundamental and technical analysis to identify longer-term trends. They focus on factors such as company earnings, industry trends, economic indicators, and market sentiment. Positional traders use strategies like trend following, swing trading, and momentum trading to capture and profit from larger market movements.

4. Risk and Reward:

Intraday Trading: Intraday trading involves higher levels of risk due to the fast-paced nature of trading and potential exposure to intraday market volatility. Profit targets are usually smaller, but losses can be limited with appropriate risk management techniques.

Positional Trading: Positional trading typically involves lower levels of intraday volatility risk. However, there may be higher overnight and long-term market risks. Profit targets are generally larger, but there is a potential for larger losses if the market moves against the trader.

5. Time Commitment:

Intraday Trading: Intraday trading requires active and continuous monitoring of market movements throughout the trading day. Traders need to be available during market hours to execute trades and manage positions.

Positional Trading: Positional trading allows for a more flexible time commitment. Traders need to monitor their positions and the market regularly but may not require constant attention during market hours.

Choosing the Right Approach

When deciding between intraday trading and positional trading, traders should consider factors such as their risk tolerance, time availability, and trading goals. Intraday trading offers quick profits but demands continuous monitoring and entails higher risk. In contrast, positional trading provides the opportunity to capture long-term trends but requires patience and discipline.

Intraday trading and positional trading represent two distinct approaches in the world of financial markets, each with its own set of characteristics, advantages, and considerations. By understanding the differences between these trading methodologies and aligning them with their individual preferences and objectives, traders can make informed decisions and enhance their trading success. Regardless of the chosen approach, it is essential to educate oneself, develop a trading plan, and practice risk management diligently. Using paper trading app SmartBulls can also aid in honing trading skills and strategies before venturing into live trading environments.