Are You a Position Trader or a Day Trader?

By: Don Wellenreiter

The following is an excerpt from Don Wellenreiter's Millionaire Secrets for the Average Guy

This is one of those things that instead of being set in concrete; it turns out to be a moving target. Before trading you must decide if you are a position trader (one who builds a position in a market, based on a fundamental belief or technical indicator, and holds it for a certain time) or a day trader. A position trader will use either daily, weekly, monthly, or a combination of all three charts to base his trade on. Day traders may use daily charts, but usually use some variation of intra-day charts to trade. Most computer charting software can display charts in time intervals from one minute and up.

New traders will have to decide which time frame fits their trading character best. The new position trader must have more capital available to hold the contracts overnight while the day trader is ‘flat’ at the end of the day and thus requires less capital (margin requirement for day traders is generally ½ the margin of the underlying contract). If you become a position trader you must have nerves of steel and the ability to sleep at night while the other half of the world is trading and pointing missiles at each other. On the positive side, position traders can get on board a nice run and capture the majority of the move, whether it is up or down.

The day trader appears to have it easier, since he doesn’t carry any positions over night and has a smaller margin requirement to trade. That is true, but he must also be right about the market’s direction in a very short period of time or else he must take his loss by the close of business. Day traders should never carry a losing position overnight: this is the express train to disaster. If you are a day trader, stay a day trader. Most experienced day traders will tell you that a long-term trade is just a short-term trade that didn’t work out.

If you decide to day trade, you now must choose what time frame you will use. The one time frame you need to get out of your mind right away is the one-minute chart. Only floor traders can trade this way, and it is still difficult for them. It amazes me how many new traders think that they can effectively trade off a one-minute chart. No matter how good your data carrier is, there is no way that they can deliver instantaneous quotes, there are always some types of delays. Remember, once a trade is executed the floor reports it, it is entered into the system, and then transmitted by satellite to your location. This takes several seconds, usually not a big deal for most traders, unless you are trading off a one-minute chart. Besides the normal human delays involved in a one-minute chart, you will do nothing but irritate your broker and the floor broker with your continual calling with cancel and replace orders.

Most traders prefer to work off of charts at least 15 minutes or longer in duration. For my trading, I prefer using the 30-minute chart when I trade in the S&P or Dow. It helps me get into trades a little sooner but doesn’t whip me around as much as a shorter-term chart.