Position Trading or Day Trading?

Finding The Approach That Works For You

Position Trading, Day Trading

I’m pretty sure that, in at least one way, I am like you: I enjoy trading the markets. I take pleasure in picking investments through research and most especially, I am keen on taking profits. I may or may not be like you in that I am strictly a position trader. You’ll never find me glued to the ticker, anxiously awaiting the signal to capture a quick profit. For me, that would be a monumental waste of precious time and an invitation to donate my resources to the other side of the market. Several of my friends and colleagues (and a great many CSI subscribers) take a different approach, however, relishing the process and the profits of day trading.

If you’re satisfied with both your income and the pleasure derived from your trading activities, then you might prefer to skip this article and get back to trading. It is intended for traders who are unfulfilled either in profitability or enjoyment. It aims to help you decide whether position trading or day trading is right for you and includes tips to improve success using either investment style. There is undoubtedly merit in both position trading and day trading, provided the chosen approach suits your temperament, and the unique advantages and pitfalls of each approach are understood.

Let’s start with a little comparing and contrasting: Just about anyone would agree that you can lose your money faster day trading. You can make money faster, too. Call that a draw. Are there other aspects of trading, such as expenses and analysis techniques that differ based on trade duration? My staff and I looked into noteworthy aspects of day trading and long- or intermediate-term trading that affect your bottom line. I’m sharing our findings here.

Because I rarely enter a market with a hasty exit in mind and because CSI happens to offer an end-of-day service, we had some concern that unintended biases might creep into this report. That having been said, please know that we tried to be absolutely objective. This was by no means a scientific evaluation, but more a compilation of ideas gleaned from magazine articles, books, websites and personal experiences in an attempt to show what works for users of both trading styles.

Higher fixed costs Intraday

It is clear that fixed costs are greater for day traders, who typically sign on for expensive real-time update services, often with costly analysis software and advisory reports. Monthly software fees can also significantly add to the costs of intraday trading. Consider an example of how your “profits” might be eaten up over the course of a month while making multiple daily trades: So-called all-in-one firms earn substantial revenue from intraday traders through commissions, monthly fees and software upgrade fees. Because of limited data resources, and in the absence of many necessary tools such as offered by CSI, their customers may also incur outside fees for software, data, market indicators and recommendations.

The cost of executing trades has a much greater significance for day traders than for position traders because day traders make more trades. Therefore, the quality of fills gains heightened importance for day traders. Any time there is a formidable bid/ask spread, you are probably considering an illiquid market and may be paying too much. Did you know that the New York Stock Exchange offers the best price to traders 90% of the time?(1) This is why many brokerage firms use only the exchange and eschew “market makers” who provide the same service, but with typically worse fills for their clients.

The cost of executing trades has a much greater significance for day traders than for position traders because day traders make more trades. Therefore, the quality of fills gains heightened importance for day traders. Any time there is a formidable bid/ask spread, you are probably considering an illiquid market and may be paying too much. Did you know that the New York Stock Exchange offers the best price to traders 90% of the time?(1) This is why many brokerage firms use only the exchange and eschew “market makers” who provide the same service, but with typically worse fills for their clients.

Analysis Tools

The availability of quality analysis tools is an important variable that, in general, gives an advantage to position traders. This is because position traders are likely to use long-term technical analysis in conjunction with fundamentals for evaluating trading opportunities. This contrasts to intraday systems that rely on very short-term technical signals that reverse themselves time and time again over the course of the day.

From my own experience, and with the support of many analysts, market fundamentals are key to determining what is and what isn’t a good trade. Does this mean that day traders can’t use fundamentals? Absolutely not! Day traders are not required to disregard longer-term trends and fundamentals. I daresay many of the CSI customers who are day traders have made the connection between long-term analysis and intraday profits. Those day traders who rely solely on tick-by-tick systems are adversely affected by limiting the scope of their analysis. Whether trades are signaled by technical indicators, pure fundamentals or hunches, and whether they are executed on a short-term (near real time) or end-of-day (position) basis, the best results come when trades are in the direction suggested by reliable fundamentals. For any trading style, you will usually get a better ride by first doing your homework.