Position Trading or Day trading?
Finding Approach Which Works Well For You
I am pretty sure, in at least one way, I am like you: I enjoy trading the financial markets. I take pleasure in picking investments from 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
For those of you that trade the futures markets, there are a lot of other things outside the future markets that you should be following. But, I guess my bigger message is for those of you that aren’t in the futures markets, whether you trade them or not, the futures markets have a tremendous impact on what happens in the other markets. That’s why you should soak up every piece of good trading knowledge like a sponge in a quest to clearly see the bigger picture. for a free service that gives you unlimited access to 4 trading seminars taught by industry legends Dan Gramza, Jack Schwager, Ron Ianieri, and of course John Murphy. Get started learning from market greats in the comfort of your own home, on your schedule at no cost today . . .
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 by 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-term or mid-term trading that affects 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 cost intra day trading
It is clear that fixed costs are greater for day trading and day-traders, who typically use costly real-time data feed services, often with costly technical analysis software and advisory reports. Monthly software fees can also significantly add to the costs of intra day 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 intra day 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 vs position traders because a day trader make more trades. Therefore, the quality of fills gains greater 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 "market makers" who provide the same service, but with typically worse fills for their clients.
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Because stock limit orders are usually invisible to the market, small traders are forced to accept the best price the brokerage firm is willing to get them. In practice, this is often a market maker's bid or ask, which may represent a wider range than the bid-ask spread available through the exchange. The day trader who is continually paying the bid-ask spread does a lot to boost market makers' profits. Most market makers appear to kick back a nominal amount to the broker or vendor who supplies the order. The broker is obligated to disclose these relationships, plus payment terms and the percentage of order flow going to each. Be sure to read the fine print to find out where your money is going.
The spread between the bid and ask (slippage) can be significant. In this example from a brokerage website, it is ten cents per share. The quality of trade 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.