Stock market trading is exciting and, if done right, can help you grow your wealth. However, trading doesn’t follow a one-size-fits-all approach. There are multiple trading strategies with intraday and positional being two prominent ones. Both these strategies come with unique opportunities and cater to different categories of investors. Understanding the differences between them can help you make an informed choice.
What is Intraday Trading?
Intraday trading is a type of trading involving buying and selling stocks within the same day. This form of trading aims to take advantage of price movements during the day for quick profits. For example, if you purchase 100 shares of a company when the market opens and sell them within the same day, it’s called intraday trading.
Key Features of Intraday Trading
Intraday trading has the following features:
Short Duration
Intraday trading is for a short duration, where trades are settled on the same trading day. As an intraday trader, you buy and sell stocks within a few hours and close your position before markets close.
Focus on Small Price Movements
Intraday trading aims to make profits from small price movements occurring during the trading session. To do so, you need to carefully analyse trends and patterns to find out fluctuations in stock prices. Even a slight change can generate considerable profits.
Requires Constant Market Monitoring
You need to continuously monitor markets throughout the trading day to make decisions. This involves tracking price changes and news updates to identify profitable opportunities.
Liquidity
Intraday trading warrants trading in high liquid stocks which you can buy or sell without delays. High liquidity ensures you can quickly enter and exit your positions, highly essential for capitalising on small price changes.
What is Positional Trading?
Now let’s understand what is positional trading? Positional trading is a long-term trading approach where you hold onto your position for a long period. This could be days, weeks, months or even years. Instead of focusing on small price movements, positional traders look forward to bigger trends and broader market opportunities.
Key Features of Positional Trading
The key features of positional trading are:
Longer Duration
Positional trading involves holding onto trades for extended periods. Because of this, it requires patience and a long-term outlook through which you can capture large price movements unfolding over time.
Less Monitoring
Positional trading doesn’t require constant market observation as trades aren’t executed daily. You need to analyse market conditions and revisit your positions instead of watching price changes every minute.
Lower Risk on a Day-to-Day Basis
As positional trades remain open for extended periods, short-term volatility has minimal impact on the overall trading strategy. This reduces the stress and the need to react to minor market movements.
Differences Between Intraday and Positional Trading
The table captures the differences between intraday and positional trading on various parameters:
| Parameters | Intraday Trading | Positional Trading |
| Objective | To make quick profits by capitalising on short-term price movement throughout the trading day. | The aim is to capture larger price movements occurring over time by riding on big trends. |
| Holding Period | Positions are squared off within the same trading day to avoid overnight risks. | Positions are held for an extended period that allows you to benefit from long-term price movements. |
| Risk Exposure | Involves higher risk due to short-term volatility. Note that price can swing significantly within a day, and therefore, it warrants quick decision-making. | Carries lower risk compared to intraday trading as short-term market fluctuations have minimal impact on long-term trades. |
| Time Commitment | Warrants constant market monitoring, and you need to analyse price charts to make decisions within a split-second. | Requires less monitoring and traders can analyse their positions periodically. |
| Stress Levels | Can be highly stressful as you need to constantly monitor markets and make decisions within a short time period. | Relatively less stressful as you hold onto your positions for an extended period. |
| Profit Potential | Profits depend on your trading acumen. They are smaller and can add over time. | Has higher profit potential with long holding of positions. |
| Tax Implications | Frequent buying and selling can result in higher tax implications. | Taxation is relatively low as trading frequency is less compared to intraday trading. |
Choosing Between Intraday and Positional Trading
Intraday and positional trading have their pros and cons. While opting for either, you need to keep in mind the following things:
Preference for Profits
If you prefer quick profits and can continuously monitor markets, you can opt for intraday trading. On the other hand, if you are ready to play the waiting game, you can opt for positional trading.
Risk Tolerance
If you can handle high-risk and stock market vagaries, you can opt for intraday trading. On the other hand, if market volatility makes you tizzy, you can choose positional trading.
Irrespective of whether you choose intraday trading or positional trading, it’s essential to ensure you opt for liquid and fundamentally strong stocks. While liquid stocks can help you enter and exit your positions quickly and can come handy in case you need money on a short notice, fundamentally strong stocks are better structured to weather market volatility.
They can hold you in good stead during market turbulence and protect your portfolio from taking a dip when markets are choppy.
Conclusion
Both intraday and positional trading have their own benefits and challenges. While the former offers quick profits, it comes with higher risks and stress. Positional trading, on the other hand, requires patience and discipline. However, it can provide substantial returns over time with relatively less daily volatility.
Ultimately, the right choice depends on your trading goals, risk tolerance, and how much time you can dedicate to the market. If you are just starting, you can test both the strategies on a small scale and learn from the experience. Over time, you will discover which style aligns better with your risk appetite and financial goals.
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