Day Trading vs Position Trading

Comparison between Styles, Costs, and Profits

Although “Day Trading” is the most widely talked about trading style for Retail Traders (YOU), it is the least profitable of all the short-term Trading Styles. This is a little known fact that no one ever tells Retail Traders when they start to learn to trade.

This is because so many vendors make so much money from Retail Day Traders. The allure of Day Trading is that it is the “ultimate” style, pitting the trader against the wily Market Makers. The cost of Day Trading using the proper tools, time required to do it right, and lower percentage of profitable trades all consume more profits than other trading style.

Market Makers have a far less important role these days due to the automation of the marketplace, and the extremely high liquidity generated by High Frequency Trading HFT firms. HFTs actually provide the liquidity that used to come from the Market Makers.

So what Trading Styles are the most lucrative?

Both Swing Trading and Position Trading have a significantly higher “Return on Time and Expenses” than Day Trading. Trading for a living or even part-time is a business or at least should be treated as a business.  As such, you need to “pay” yourself an hourly wage or a salary as well as cover ALL of your trading expenses.


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Most of the time when I discuss this aspect of trading with new Students who have been trading for a while, they are baffled as they have not begun to consider how many hours they are spending, nor are they aware of all of the costs.

Some Retail Traders try to scrimp on charting software systems. Instead of getting the best trading charting software for their Trading Style, they try to do chart analysis with a free program. That is simply pinching pennies and throwing away dollars. If you want to make $1000-$10,000 a month which is pretty typical for Retail Traders, then you need to stop wasting time and money and get a proper set of tools. This includes a charting program where you can save your work, build watch lists, and manage your trading in a professional manner.

Position Style Trading is the least used, yet most profitable Trading Style for more Market Conditions.  Below is a chart example of a Position Trade.

chart example with position trade - technitrader


The entry would have been made by most Retail Traders as the stock completed its bottom around 62. In just over 3 months the total gained is approximately 22 points for one trade, so trading costs are minimal.
Not a bad return for a few hours a week effort, a few dollars in broker fees, and a scant $30 dollars a month for a charting program. Well worth the effort, tool costs, and your time. That equates to $22,000.00 on a 1000 share lot trade.

Position Trading is lucrative as stocks move out of bottoms, and begin Platform building or Moderately Trending patterns.

The chart example below is of a Position Trade still underway with continued upside potential. The entry again was at the completion of the bottom.

chart example of a position trade with continues upside potential - technitrader


Here is a comparison between Day Trading versus Position Trading
Day Trading requires the most expensive tools, equipment, and a huge amount of time:
1. 3-5 monitors hooked to a multiple processor high speed computer. It would be best to work near New York City for faster trade execution.

2. A direct Exchange Communication Network ECN to the exchanges for faster order execution. Remember High Frequency Traders HFTs are trading in the millisecond. That’s 1000 trades executed in and out of the buy or sell per SECOND, while you are trading at the minute scale.
3. At least 1-3 years practice on a trading simulator to hone skills Day Trading
4. A Day Trading system charting software, that cost ranges from $1000-10,000.
5. Working 8-10 hours every day the market is open. It is rare that a Day Trader can make sufficient gains trading just in the early morning.
6. Pennies instead of dollars is how the market is day traded, so hundreds if not thousands of trades are needed to make up one point gain. That means high costs for order processing, so no matter how cheap your broker fees are these add up quickly.

Position Trading requires minimal trading tools, equipment, and time:

1. 1-2 computer monitors

2. Standard retail online broker

3. Charting software such as TC2000 or StockCharts.com

4. Minimal time using a trading simulator after taking a Position Trading Course

5. One day a week to check charts for a couple of hours

Summary

Position Trading is under-rated as a Trading Style. Most Retail Traders do not know anything about it, and few use it. It is ideal for Retail Traders who are still working at their regular job, people too busy to sit at a computer all day while the markets are open, and retirees who would prefer to enjoy their retirement rather than work at trading every weekday. It is for individuals who enjoy a lower risk with higher profit Trading Style requiring less work, costs, and effort.

Position Trading is far easier, with less emotion, less stress, and significantly higher “Return on Time and Expenses” than Day Trading. Why do so many traders try Day Trading? It is because they never learned to trade properly. They think that if they are in the stock for a shorter period of time, they will not lose as often as they did holding longer. However the reality is that the less time holding a stock, the higher the risk.


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Trade Wisely,
Martha Stokes CMT
TechniTrader technical analysis using a TC2000 chart, courtesy of Worden Bros.

Chartered Market Technician
Instructor & Developer of TechniTrader Stock and Option Courses
TechniTrader DVDS with every course.

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Disclaimer: All statements are the opinions of TechniTrader, its instructors and/or employees, and are not to be construed as anything more than an opinion. TechniTrader is not a broker or an investment advisor; it is strictly an educational service. There is risk in trading financial assets and derivatives. Due diligence is required for any investment. It should not be assumed that the methods or techniques presented cannot result in losses. Examples presented are for educational purposes only.