Positional trading is a trading style in which traders hold positions in securities for an extended period, typically weeks to months, to take advantage of fundamental and technical analysis signals. Unlike day traders, who hold positions for only a few hours or minutes, positional traders aim to capture larger market moves by holding their positions for a more extended period.
Positional traders use a variety of techniques to identify potentially profitable trades. They may use fundamental analysis, which involves examining a company’s financial and economic data to determine its value and potential for growth. Technical analysis, on the other hand, involves studying charts and other market data to identify trends and patterns that suggest potential price movements.
Positional traders may also use a combination of these approaches or employ other trading strategies, such as trend following or momentum trading, to enter and exit positions. They typically focus on high-quality securities and manage their risks by setting stop-loss orders and other risk management techniques. Positional trading requires patience, discipline, and a long-term trading market view. It is a popular approach among experienced traders who seek to capture larger profits while minimising risk.
Understanding Position Trading
Positional trading is a trading strategy in which traders hold positions for an extended period, typically weeks, months or even years. Positional trading aims to identify long-term trends in the market and take advantage of them. This type of trading is also known as the buy-and-hold strategy, where traders buy and hold onto an asset for a long time, expecting the price to rise over the long term.
Positional trading differs from day trading or swing trading, which are short-term trading strategies. Day traders typically hold positions for only a few minutes to a few hours, while swing traders hold positions for several days. In contrast, positional traders are in it for the long haul, hoping to capitalise on large market movements over time.
How To Trade Using Positional Trading
Positional trading involves a combination of fundamental analysis and technical analysis. Fundamental analysis involves analysing the underlying economic and financial factors that drive the market, such as interest rates, earnings reports, and economic indicators. Technical analysis involves analysing the price movements and chart patterns to identify trends and potential entry and exit points.
The first step to trading using positional strategies is identifying the underlying asset you want to trade. This could be a stock, a currency pair, a commodity, or any other asset that is traded in the market. Once you have identified the asset, you must thoroughly analyse the asset’s fundamentals analysis and technical analysis tools.
Positional trading strategies can be categorised into two primary approaches: fundamental analysis and technical analysis.
- Fundamental Analysis
Fundamental analysis is a method of analysing the intrinsic value of an asset by examining its economic and financial conditions. In other words, fundamental analysis focuses on the underlying factors that affect the price of an asset, such as the company’s earnings, revenue, and growth prospects. Fundamental analysis can include broader economic factors such as interest rates, inflation, and government policies.
One of the most important aspects of fundamental analysis in positional trading is the selection of the right stock. Traders should seek out companies with strong fundamentals that are undervalued by the market. This can be accomplished by analysing financial statements, earnings reports, and market trends.
- Technical Analysis
Technical analysis is a method of analysing market data, such as price and volume, to identify trends and patterns that can be used to predict future price movements. Technical analysis typically involves using charts and indicators, such as moving averages, trend lines, and oscillators, to identify potential entry and exit points.
The breakout trading strategy is among the most popular technical analysis strategies for positional trading. This involves identifying key levels of support and resistance on a chart and waiting for the price to break out of these levels before entering a position. Traders can also use trading chart patterns, such as triangles, head and shoulders, and double tops, to identify potential breakouts.
Another popular technical analysis strategy for positional trading is the RSI strategy. The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. Traders can use the RSI to identify overbought and oversold conditions, which can be used as potential entry and exit points.
Common Positional Trading Strategies
Positional trading is a strategy where traders hold their positions for an extended period, usually days or weeks, to profit from longer-term price movements. Traders use several different positional trading strategies to identify trends and capitalise on market opportunities. Here are four of the main positional trading strategies:
- Breakout Trading Strategy: This strategy involves looking for price breakouts above resistance levels or below support levels to identify potential trend reversals. Traders enter positions when the price moves further in the direction of the breakout and set stop losses, and take profit orders at predetermined levels.
- Support and Resistance Trading: This popular strategy captures the market trend by identifying key support and resistance levels where price movement is likely to pause or reverse. By aiming for larger gains over a longer period, traders can reduce risk exposure by placing far fewer trades.
- 50-Day Moving Average Trading: This strategy involves monitoring and trading the 50-day moving average trend line to identify potential support or resistance levels in the market. Traders use the SMA to indicate where to enter or exit positions.
- Pullback and Retracement Trading Strategy: This strategy involves capitalising on temporary reversals in the direction of an overall trend by entering positions once a retracement has been identified or predicted. Traders analyse price action data such as charts, trends, and patterns to identify potential reversals in the prevailing trend before executing a trade.
No matter which positional trading strategy a trader chooses, it is essential to use proper risk management techniques to minimise the risk involved with any market activity. By keeping careful track of trades, traders can increase their chances of finding consistent success in the markets.
Is Positional Trading Right For You
Position trading can be a suitable investment strategy for some traders but not for everyone. Here are some factors to consider when deciding if positional trading is right for you:
- Investment Goals: Position trading best suits traders with long-term investment goals. Position trading may not be the best fit if you are looking for short-term gains or prefer a more active trading approach.
- Risk Tolerance: Position trading involves holding positions for an extended period, exposing you to greater risks. If you have a low-risk tolerance or prefer to limit your exposure to the market, then position trading may not be the best fit for you.
- Patience: Position trading requires great patience and discipline, as traders must be willing to wait for extended periods to see significant price movements. If you are not patient and prefer to see immediate results, then position trading may not be the best fit for you.
- Time Commitment: Position trading requires a significant time commitment, as traders must monitor their positions over an extended period. If you do not have the time or inclination to monitor your positions regularly, then position trading may not be the best fit for you.
Positional trading is a trading strategy where traders hold positions in securities for an extended period, typically weeks to months, to take advantage of fundamental and technical analysis signals. It is a patient and disciplined approach to trading that aims to capture larger market moves while managing risk. Positional traders use techniques to identify potentially profitable trades, including fundamental and technical analysis, trend following, and momentum trading. This approach to trading is popular among experienced traders who seek to capture larger profits over the long term.