Intraday vs Positional Trading: Which One Should You Prefer?

How is an intraday trader different from a positional trader. Obviously, as the name suggests, an intraday trader looks to close out positions on the same day and carry zero positions overnight. On the other hand, the positional trader is willing to take positions and wait for some to get good returns. The debate is which is more ideal choice in Intraday Vs Positional Trading.

Normally, such questions do not have clear answers and it would depend on the aggression, risk taking capacity, skill sets and the mental attitude of the trader. Here again the answer is no different, because like the Hatter told Alice in Wonderland, it depends. Let us delve into this debate in greater detail but let us start with understanding what is positional trading and intraday trading.

Investing versus trading

Investing is for the long term. A typical investor buys a stock after thorough research and holds on for a couple of years or more. Equities take a long time to give big returns and so patience is necessary for investors. Investors are more positional and opportunistic. A positional trader can be an intraday trader or he can be a positional trader willing to take positions and wait for a few days or weeks for the news flow to play out.

Investments must be backed by substantial research into the fundamentals of the stock and its pedigree. Trading is normally done based on charts and news flows or because the sector is attractive and you try to ride the sectoral theme with stock specific bets.

Hypothetical example of Intraday and positional trading

Example: You want to buy 500 shares of Tata Steel, which would cost you around Rs.6 lakhs. You expect the stock price to go up but you only have Rs.2 lakhs available with you. What do you do? You can borrow the money or take a position in futures or settle for a lower number of shares. However, there is another option, You can choose to buy 500 shares of Tata Steel for intraday and square it off the same day. Here, only the profits or losses get adjusted to your trading account By now you must have understood what is positional trading and intraday trading? Let us recap anyways.

With Rs.2 lakh capital, you can buy 150 shares of Tata Steel at Rs.1200 and hold it in your demat account and sell when the price goes. That is a positional trade. Alternatively, you can buy 500 shares and identify it as an intraday trade (MIS trade) and close out the same day. This is an intraday trade. Intraday Vs Positional Trading is normally a choice based on risk appetite, return expectation, capacity to monitor trades, adrenaline rush and your willingness to take risk on margins.

Here are some ground rules for you to decide on intraday versus positional trading

Both the intraday trading approach and the positional trading approach have their merits and demerits. Here is a comparison on some key parameters.

• If you don’t want to take overnight risk in equities, then intraday trading is the right fit. However, if you are not comfortable with the adrenaline rush of intraday trading and the extremely short time at your disposal, then you can opt for positional trading.
• Can you track the stock closely? When you trade intraday, it is essential to track the stocks very closely in terms of news flows, charts, breakouts, latest results etc. In case, you think such tracking is too much of a hassle, it is best to stick to positional trading.
• Are you keen about ownership and the ownership benefits of equity. An intraday trader does not get the benefit of dividends, splits, bonuses, long term capital appreciation etc. On the other hand, the positional trader makes the best of all these corporate actions. Also, since intraday trades do not take ownership in equities, they do not have much of a say in the AGMs or in the company policy. That is only available to positional traders
• Can you be totally disciplined in the stock markets? If you think that discipline, capital monitoring etc are tough tasks, then intraday trading is not for you. In fact, intraday trading is a lot more about discipline and risk management that it is about trading skills or ability to judge the market. These are less pronounced in positional trading.
• Intraday traders have to go necessarily with stop losses and profit targets and there is now leeway. There is a lot more flexibility to positional traders since they are willing to pay the full money and take delivery of the stock in their demat account. The only defence intraday traders have against inflexibility is strict stop loss and profit targets.
• Intraday traders take a more holistic approach with focus on charts, news flows and short term data triggers. The positional trader takes a more focused fundamental analysis based view on the trade but also uses charts to identify the ideal entry and exit levels. However, the focus of the positional trader is largely on fundamentals only.
• There is a sharp difference in the working styles. The intraday trader spends most of his time poring over technical stock price charts and patterns as well as for supports, resistances and breakouts. On the other hand, the positional trader spends more time doing research and understanding the fundamentals of the business behind the stock.
• In intraday trading you have to make several trades in a day, and each trade requires intense concentration and focus because it has to be completed within 6 hours. The room for error in intraday trading is very limited. This risk is not so acute in the case of positional traders as they have the leeway to wait longer if required.
• For positional traders, the capital requirement is bigger. For example, the intraday trader does not require large capital to start trading. They can make an outlay of small sums every day. Even commissions are significantly lower. The positional trader needs capital to be locked which is why opportunity cost is a big consideration.
• Day trading is a full time job, so you cannot do it as a leisure activity. Positional trading is available to anybody, who can understand companies. The close tracking and spending too much time is not necessary.
• Finally, let us talk about returns and risk. The intraday window is obviously riskier, which is why stop losses and risk management are paramount. In positional trading, if you are in the right stocks for a long period, returns can be substantial with limited risk.

How to pick stocks for intraday trading?

There are no hard and fast rules but stick to stocks that are liquid. Here liquid is not just about volumes but also about low bid/ask spreads so that the trader does not lose too much money in execution. Also, it must be possible to exit bigger trades without impacting the price. Another factors is to focus on high beta stocks. You want stocks for intraday trading that move more than the market; both on the upside and the downside.

Don’t pick too many stocks. Keep an overall universe of around 50 stocks which you track and zero in on 10-12 stocks where you will trade on a regular basis.

Frequently Asked Questions

Which is more profitable?

Both can be profitable and loss making. For example, in positional trades, your trade can backfire if you get the wrong stock or at the wrong price. Intraday can backfire if you don’t keep discipline of stop losses and profit targets. What is more profitable depends a lot on how you plan, execute and monitor the trade.

Which is more risky; intraday or positional

Certainly, intraday trading is riskier because it entails that you open a position and also close the position within the day. However, you can manage risk with stop losses, short profit targets and constant monitoring. In positional trading, your trade is predicated on one stock or a few stocks. Hence the risk is lower as you have time in your favour. However, bad selection of stocks can backfire, especially if you try to do value hunting in dud stocks.