Guide to position trading


If you are struggling with questions regarding if you should choose day trading or position trading—this guide is for you. Understanding the difference is one of the top things to look at when learning to be an options trader.

We’ll look at the differences in an understandable way so you can decide which one suits your needs best. Let’s focus on understanding how these trades work and what kind of strategy you will use in different situations.

What you need to know

Day trading and Position trading are both famous for having a high risk. There is no such thing as risk-free, but you will try to reduce that risk as much as possible by using the proper strategy for our type of trade.

Consider the strategies that world-class brokers like Saxo bank would employ.

You can spend large amounts of time finding trades with day trading, which means you might not be home when the kids come back from school or you need to pick them up. You can’t do that with position trading – your daily schedule needs to allow you time at home so you can keep track of your positions during opening hours. We will look into these two types in more detail now:

Day Trading (Short selling)

Simply put, this is when you buy and sell throughout the same day.

In a day trade, you have to consider the cost of putting on and maintaining your position from the previous day. As time progresses, you will lose money if you don’t close out your account at the end of each day. This is one of the mistakes that every day trader makes at least once.

The profit or loss you make is determined by what you buy and sell it for throughout the same trading session – which could be up to 16 hours. And since we are talking about short selling here, you can use an even smaller timeframe to describe a day trade where only a few seconds may pass before buying and selling again.

This scenario happens when there is a tiny price movement in stock during one trading session, but this type of movement does happen from time to time.

Position Trading

This refers to buying and selling on the same day but closing the trade at the end of each trading session.

When you are position trading, it’s essential to understand that you will close your positions every night before bed. If you do not, you will start losing money because your open positions will be slowly draining your account if they go in the wrong direction throughout hours, days or even weeks. Position traders use charts with much larger timeframes than short-term day traders, which means it can take up to months before making a particular move in their stock.

Day traders use smaller price movements with shorter timeframes to make efficient trades during market hours when large amounts of investors actively buy and sell stocks. Your cost basis is also fixed for position trading, which means that if prices do not move in your favour, then you will be stuck with the same entry price until the end of your trade.

The most significant difference between these two strategies is that day traders have to pay for being in a trade all day, while position traders can ignore market hours and still place trades when they have time. This last part is essential to enjoy this type of trading – because it can feel very lonely being home by yourself while everyone else is out partying or spending time with their loved ones. The choice here is yours – are you ready for this? If so, let’s continue learning about both types of trades.

What to expect

We’ve discussed both trading styles, but how much can you make? Even though position trading has more significant drawdowns (which means larger losses), it also has higher returns than day trading. It is, of course, due to the longer timeframe and the price movements that we will see.

Remember that if you are a beginner, it’s crucial to keep your account small. It doesn’t matter how good you think you are; there is always someone who can beat you at trading – it is simply a numbers game.

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