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Introduction:
You’ve probably heard the terms day trading and positional trading has thrown around before, but what do they mean? How are they different? Which should you use to trade your stocks? This article will answer all these questions and more!
What Is Position Trading
Let’s look at a baseball metaphor to give you an idea of what position trading is all about. Imagine that you’re not a player on a team, but rather an investor in one, and your job is to buy low and sell high.
In other words, you want to buy players on a losing streak because you believe they will eventually turn it around, but have no interest in buying players who are already on winning streaks because you feel their value has peaked.
Position traders are willing to hold onto stocks or securities that they buy regardless of how much time passes, as long as they expect positive performance in due time (like when stocks rebound after prolonged losses).
What Is Day Trading
Investopedia explains that day trading involves buying and selling financial instruments within one day's trading session. Positional traders, on the other hand, typically make trades that are more long-term in nature, focusing more on generating a profit from price fluctuations over time rather than on short-term spikes in price.
There is no firm rule regarding when an investor becomes a day trader or positional trader.Some investors may have characteristics of both types of investors, while others tend to lean one way or another as they gain experience in either style of investing or move toward greater specialization based on their individual goals and profiles.
Advantages of Each
Positional trading generally refers to buying and holding securities over a long period of time while day trading generally refers to short-term buying and selling of securities—with an emphasis on quick profits. Positional traders often hold security as it appreciates over time, with limited attention paid to short-term market movements; they're more interested in its long-term potential as an investment and tend to hold a larger number of positions simultaneously.
Meanwhile, day traders typically keep their holdings to a minimum and pay close attention to price fluctuations over shorter periods of time. Although both positional trading and day trading can be profitable, there are certain circumstances that make one or the other better suited for you.Think about your goals (long-term or short), tolerance (high or low), and personality (patient or impulsive). Then consider how you want to monitor your investments (frequently or infrequently) before deciding which type of trader you are.
Disadvantages of Each
Here’s where things start to get a little tricky. If you plan on holding your investments for multiple days or weeks, it’s unlikely that day trading will offer significant advantages over positional trading and vice versa (unless you make a lot of trades). However, if you plan on making a number of trades in one day or week, then you will want to find an approach that works best for your individual needs and skillset.
Each can be profitable if used correctly but there are potential downsides worth considering when deciding which path is right for you personally!For example, because positional traders hold their positions longer than day traders do, they typically experience less price volatility. This can mean better long-term returns for investors who don’t mind taking some in exchange for potentially higher gains.
In addition, experienced traders may be able to get away with more since they are more aware of what they are getting into and thus less likely to fall victim to panic selling during market corrections or crashes. Of course, these benefits come at a cost—positional trading is generally considered much more complex than day trading due to its time commitment requirements and specific skill set requirements—but it's not something every investor wants or needs.
How to Choose Between Positional Trading and Day Trading
There are pros and cons to both positional trading and day trading. Understanding these different models will help you figure out which one might be right for you, or if both strategies could work together in a single portfolio. The key things to keep in mind when deciding between these strategies are your investment goals, tolerance, time horizon, and position size (how much money you have to invest).
So let’s get started with some tips on each one of these options so that you can figure out what works best for your own individual needs! After understanding what each strategy entails, how do you decide which one will be better for your particular situation? In general, if you want quick wins but also want to limit your losses, then day trading might fit better into your lifestyle.
If it seems like something more suited to someone who only wants to make trades once or twice per week but who may also lose sleep at night over them (not as common), then positional trading might make more sense for you. Whichever option seems like it would fit well into your life is probably an indication of where most people should start when it comes down to choosing between these two approaches.
Conclusion
The title of my post is a question because it’s meant to be one. Ultimately, there isn’t just one way to trade; it comes down to your own personal style and preferences, which will change depending on where you are in your trading journey. While day trading seems to have a lot of hype around it (probably due to sites like Instagram or YouTube), there are many people who would rather take a long-term approach or do some sort of combination between day and positional trading (depending on their tolerance).
Either way, if you love what you do, then why not continue doing it? In fact, I think that's how I'll end my post... with a quote from Michael Jordan: If you accept mediocrity, you deserve what you get. This quote applies to anything in life—not just trading. If we expect nothing out of ourselves and settle for average results, then that's exactly what we'll get.
So don't settle! Think about how great it feels when we put our all into something and crush it—it's an amazing feeling! And even though failure can be frustrating sometimes, remember that failing also teaches us valuable lessons so that next time we can succeed instead. In short, always strive to give your best effort so that no matter what happens at least you know that you tried everything possible to make it happen!