In the share market, traders have the option to choose the type of trading from the two main available options -- intraday and positional. Traders can either choose one of the options or both of them.
As the name suggests, intraday trading refers to entering and exiting positions on the same day. It is aimed at capturing very small moves, typically 1 percent or less. On the other hand, positional trading involves entering a position on one day and exiting it a few days or weeks later. Sometimes, a positional trader could also exit his or his position after a few months.
The magnitude in position trading, Abhishek Chinchalkar, head of education, FYERS explains, can vary from trader to trader, but a positional trader typically aims at capturing 5-30 percent type moves. However, the percentages can vary depending on the volatility of the security in question.
Now, the question comes which should be opted by traders.
The answer to this, as market experts say, depends on a number of parameters which may vary from trader to trader.
So, let's understand the advantages and disadvantages of both options.
The advantage of intraday trading, Chinchalkar explains, over positional trading is that day traders are not exposed to overnight risks. Also, when leveraged positions are taken, the intraday margin requirements tend to be relatively low.
"However, this type of trading needs discipline, experience and the ability to make decisions in an instant. As intraday traders do not carry positions overnight momentum is also a critical factor here," warns Chinchalkar.
Additionally, traders need to understand that intraday trading can be risky for them too. In a volatile market, the prices may fluctuate and may lead to unanticipated losses.
In this, stocks are purchased not with an intention to invest but for earning profits. This means intraday trading is better for those who have the risk-taking capacity and have sufficient knowledge about market performance.
On the other hand, potential tends to be much higher in the case of positional trading.
"As a positional trader, he/she is not obliged to close out open positions by the end of the day, he/she could withstand a brief period of consolidation or counter-price movement, something which a day trader cannot afford, given the shortage of time," Chinchalkar says.
That said, Chinchalkar adds positional trading needs patience, the ability to withstand larger drawdowns, and ability to manage trades well, especially considering the overnight risks that are involved.
So, when it comes to answering which of the two approaches are better, there is no certain answer.
Instead, Chinchalkar suggests, one needs to look at their trading objective, trading style, and risk-taking ability, before deciding to select one of the two approaches.
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(Edited by : Jomy)
First Published: IST