There is a lot of negative commentary out there on the web regarding the prospects of intraday trading. Admittedly, reliable studies confirm that the success rate is low with the majority of new traders blowing up their accounts in spectacular fashion. However, if you are starting with a small account, have identified an edge and can apply strict discipline – you can grow your account far quicker and more consistently than a position trader.
My journey as a full-time trader began in August 2013 not long after being inspired by reading Mike Bellafiore’s book ‘The Playbook’. I started with $18,000 in my trading account and around $5,000 in the bank to live off. Being realistic, I knew the odds were heavily stacked against me so I was prepared to get a part-time job on the weekend to make ends meet until things clicked with the trading. Given I had to cover my living expenses, the only way I envisioned making headway was through hitting consistent daily targets. So I began just trying to make $500 per day net of commissions, then bumped it up to $1000, then $2000. If you discover an edge that can be exploited with very high frequency, you will be surprised how quickly things can snowball.
Learn faster through repetition
As a newer trader, it’s my belief that you can learn to make a living as a scalper far quicker than you can learn to position trade – this comes down to process and repetition. When you develop a process and repeat it over and over again, you inevitably end up creating good habit patterns whereby your natural reaction to market events will be to follow that process as if you are on auto-pilot. A scalper’s process is repeated over and over, ten to twenty times a day. So the time taken to refine and master that process is far shorter than it is for longer time frame traders. Scalpers also don’t have to concern themselves so much with broader market trends, market regimes and an endless number of external factors. This is the type of knowledge that a position trader only acquires after years of experience. As with any education process, if you concentrate your efforts on one specific task, becoming a master at that before moving on to more complex topics, you are far more likely to succeed. This is the main reason why my own progression in trading has followed the path from scalper to intraday trend trader to position trader.
The pros & cons of both styles
The main reason why I am such big advocate of intraday trading is that, if you can make a success of it, you should be able to maintain consistent profitability through all market regimes. From an emotional stand point, this makes such a big difference when you are a newer trader because you are filled with self doubt. Trading is by all accounts, an emotional roller coaster. The emotional ups and downs are going to be far more severe with position trading where returns are usually ‘lumpy’ and less consistent. I can’t emphasize enough, the power of positive reinforcement and the encouragement that comes from small, consistent daily wins when you are a newer trader. I honestly don’t think I would have had the emotional resilience to make it as a position trader in ASX stocks when I started out in 2013. Here’s hoping I can make a good go of it now that I’ve clocked up enough screen time and the market has been more favorable for position traders.
Some thoughts on position trading – The major shortcoming from my experience, is that there are often long periods where markets are in distribution phases and become choppy. Extended periods like this can be extremely testing for a position trader. Opportunities are few and often confined to specific sectors, much of your time is best spent sitting on your hands and preserving capital. If you are experienced enough to be able to identify these choppy periods, have sufficient capital in reserve and the discipline to sit it out until conditions improve, you are probably one of the few that will make a long term success in this business. The reality is, the number of successful ‘long only’ position traders tends to rapidly multiply in favorable conditions (think the tech boom 1997-2000, the mining boom 2005-2008, and the current mining boom from Jan 2016) and then drop off again when the boom ends as traders fail to adapt and inevitably blow up – Don’t confuse brains with a bull market!
On the positive side of the ledger, when the conditions are right, the money does come a lot easier for position traders. There is a lot less skill involved in sitting back and riding a trending market. You can also put a whole lot more capital to work when position trading vs intraday trading. This is especially true with regards to the local ASX equities market where a lack of liquidity limits the scalability of intraday trading strategies. Intraday traders are inevitably forced out into longer time frames if they have to put more capital to work.
So which style is more profitable? Well, of course that comes down to the individual trader. There are a certain set of character traits that are well suited to intraday trading. If you can apply strict discipline, have a competitive spirit and a good appetite for risk in other aspects of your life, you may well find that intraday trading is better suited to your personality.