Position Trading VS Swing Trading – Which One Is For You?
There is a myriad of ways of approaching the market.
A novice trader often hears about swing and position trading, apart from day trading, which is the domain of professional traders and is best left alone by the novice as he embarks on his trading journey.
In this article, we’ll look at how position trading and swing trading are different, and which might be more suitable for you.
What Is Position Trading?
Position trading involves buying stocks and holding them for an extended period, typically a few weeks or months.
This form of trading is less susceptible to the daily gyration of the price movement.
It tends to focus on the longer-term outlook and allow their open positions to fluctuate in sync with the general market direction.
Typically, they will allow their positions to go through retracement and consolidation so long as the trend remains intact.
Traders are likely to experience the 2-step up and 1-step down phenomena while holding their positions, with a trailing stop sufficiently wide to provide room for the security to “breathe”.
Is Position Trading Suitable For You?
Position trading does not require the trader to constantly monitor his positions and is ideal for traders who cannot afford the time due to their work commitments or limited access to a computer during market opening hours.
Position trading strategies also produce less trading opportunities than swing trading.
Everything being equal, the returns with position trading may not be as high as swing trading.
For this reason, position trading is more suited as a form of strategy for capital growth over time.
What Is Swing Trading?
Swing trading takes advantage of the short-term directional move.
Trades are typically held for a few days/weeks.
Traders identify entry during a dip in a move and ride it until the sign of reversal.
Swing traders tend to be adverse to pain and will exit at the first sign of trouble.
In effect, swing trading is buying at one level and selling at another level, with little concern that the next entry price may be higher than the previous exit price.
The focus is on the direction of the price and not the price per se.
Is Swing Trading Suitable For You?
Swing trading strategies would have more trading opportunities than position trading.
As the duration of the trades is shorter, positions would have to be more closely managed than a position trade.
Swing trading is also more susceptible to noise in the market.
Traders can adopt swing trading strategies as a way to generate cash-flow.
Considerations Between Position Trading VS Swing Trading
There are key considerations when it comes to deciding the type of trading style a trader should adopt.
One of the considerations is to assess how much time you have available to commit to your trading.
This is a factor often overlooked by people beginning to devise their trading system.
Often, novice traders are drawn to short-term trading for quick returns.
This will be a challenge when traders are unable to commit the time to analyze, execute and manage the trades.
Longer-term trading, like position trading, does not require traders to consistently monitor open positions and is ideal for traders who cannot afford the time.
The process takes a much slower pace, making it easier to learn the trading skills necessary in a less pressured environment.
Pick The Trading System That Suits Your Temperament
Contrary to popular belief, trading systems and styles are not universal to all types of people.
Many novice traders believe that you can buy a trading system, adopt the style and start making money.
It is important that there is congruency between your trading style and your personality.
Ultimately, we don’t trade the market, we trade our belief system in the market.
The methodologies and style you ultimately decide on should be ones that agree with your objective, psychology and temperament.
Understanding yourself is paramount.
Lastly, as a cautionary note, do not seek complex solutions to trading.
Trading, regardless of style, should be made as simple as possible, but no simpler.
A complex trading system would be too demanding on the trader’s psychology and can be easily broken.
If you’re interested to take your stock trading to the next level, consider signing up for our Super Rally (SR) Trading Course where we cover swing trading principles.