Position Trading or Day trading?
Finding Approach Which Works Well for you
The mission of KSV is providing free traders knowledge for position trading success starting today about trading the financial markets ... 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 market ticker, anxiously waiting for a signal to capture a quick profit. For me, that would be a monumental waste of precious time and an invitation to donate my resources to the other side of the market. Several of my friends and colleagues (and a great many CSI subscribers) take a different approach, however, relishing the process and the profits of day-trading.
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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.
Top Dividend Plays (Stock and ETF)…
When your baby-sitter knows that the market is on a roll, there is no question it’s a bull market! It may also be time to keep an eye out for a correction.
No one knows when a correction will take place and you don’t want to miss gains in a bull market. So what do you do?
Easy! Continue buying good companies with outstanding fundamentals, but look for “defensive” sectors and throw in some outstanding dividend payouts for good measure.
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 commodities 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 you may be paying too much.