Trading Strategies: Intraday Trading, Swing Trading and Positional Trading

When you first think of putting your money in the share market, you basically think of two options – investment and trading. But, when you practically enter the stock market you come to know that things are not as simple and straightforward here as they may seem. In fact, investment in the share market is also not as simple as putting your money in the market and forgetting it for a few years; though this is one of the most common pieces of advice we get from people around us. Anyways, that would be discussed later.

In this write-up, we will introduce you to different trading strategies viz. day trading, swing trading, and positional trading. Understanding these strategies would help you to plan your trading career and reap maximum benefit.

Understanding Day Trading (Intraday)

As the name suggests, day trading is the trading style that involves buying and selling shares within a time frame of one day i.e. the time between opening and closing of the share market. Traders who do day trading have to convert their position i.e. buy and sell within the same day. Minutes and hour charts are useful for technical analysis in the case of day trading.

Day traders try to accumulate small profits from price fluctuations within a day. They usually do not have big profit targets to achieve. This strategy is basically like extracting drops of profits daily to ultimately form a pond. Needless to say, a day trader needs to dedicate an ample amount of time to study the ups and downs of the market and taking quick decisions.

A day trader need not necessarily have knowledge or information about the financial position of the company whose share she plans to trade (though having that knowledge won’t hurt!) Buy and sell decisions of day traders are typically based on market movement so they can easily rely on technical analysis i.e. reading chart patterns.

[Note: Among the day traders there is another category of traders called ‘scalpers’. Scalpers are the traders who use a very short period of time for taking a position in the market. They may buy and sell a stock within a few minutes while traditional day traders may hold their position for a few hours.]

Understanding Swing Trading

Unlike day traders, swing traders do not buy and sell shares within the same day. Instead, the Swing traders hold their shares till their profit target is met or the stop loss is hit. Swing traders typically hold their position for one to two weeks. The swing traders also use day charts for technical analysis before buying or selling a share.

The swing trading strategy is based on the observation that the stock prices tend to swing up and down in a pattern rather than abruptly going very high or very low. Swing traders try to extract profits from these short-term fluctuations in the market. This strategy works best when the stock market is effectively sedentary i.e. moving up and down in a fixed pattern. Once the market turns bearish or bullish, swing traders get a lesser chance to take a position and extract profit. However, a swing trade can always be carried forward as positional trade if it seems fit. Swing traders are not bound to convert their position within a stipulated time frame like the day traders.

A swing trader does not need to hold their position for very long but they definitely need more patience than the day traders. This is because swing traders have to leave their money in the market for longer period. However, they do not need to devote as much time as the day traders. It is good for swing traders to know the company’s financial position as well as to have the skill of chart reading.

Understanding Positional Trading

There’s no fixed time frame for positional trading but it is longer than swing trading and shorter than investment. We can say positional traders are short-term investors. Traders undertaking positional trading hold their position for a longer period i.e. for a few months. Weekly charts in addition to daily charts are typically used for making buy and sell decisions for positional trading.

Positional traders leave their money invested for a longer period so they need to have good knowledge of the company’s financial condition and operational performance. Such traders do not extract their profit from share market fluctuation like day traders and swing traders so they need to select stocks based on company’s performance and profits.

Without a doubt, a person entering a positional trade needs to have patience. They should not be bothered by the ups and downs of the market. Like all traders, positional traders need to keep an eye on the market but they can stay more relaxed than a day or swing traders. They do not need to stay on their toes for the market hours every day.

Which Trading Strategy is More Profitable?

Everyone enters the share market with the same goal – earning as high profit as possible. So, it is natural for us to wonder which trading style is more profitable. Honestly speaking, there’s no right answer to this question. This is a very subjective topic. What may work for someone may not work for you.

Trading is more about individual’s temperament than the calculation of figures and reading of charts. So, it is only you who can best decide what technique suits your temperament. We have discussed three major trading strategies above, now you just need to see these from your perspective. Ask yourself the following questions and you will get to know which trading style may be the best for you.

• Do you have enough time to be a day trader?
• Do you want to trade with a portion of your saving while continuing your day job?
• Are you good at reading charts and identifying repeating patterns?
• Do you know the financial positions of a few companies or can you dedicate time to collecting that information?
• Do you want small but quick frequent profits from the market?
• Can you leave your money invested in the market without getting panic attacks when the price goes down?

So, what trading style suits your personality? Tell us in the comment section below.