If you are interested in trading stocks but can’t keep up with daily fluctuations, positional trading might be the perfect fit for you.
Let’s understand how positional trading works, the various strategies used by positional traders and how it can benefit your financial goals..
What is Positional Trading?
Positional trading is a long term investment strategy where traders hold their position for a long period of time to benefit from long term trends and market movements. The holding period may vary from several weeks to years.
A positional trader buys with the expectation that prices will rise over time; his/her aim is to sell at the right moment for maximum profit. By using fundamental analysis to gauge long-term potential and technical analysis to spot ideal entry and exit points, positional traders follow the trend and look for major market movements.
It’s a patient approach that’s perfect for those looking to ride the wave of long-term gains.
What Are the Benefits of Positional Trading?
Position trading is a practical strategy where traders aim to earn significant returns over several months. Some of its key advantages include:
Lower transaction costs
Positional traders are not involved in regular trading such as swing trades or day trades. They make fewer trades, which means lower transaction fees and higher net profits. Instead of paying commissions on multiple daily trades, you might only pay a few over the course of months, allowing you to keep more of your gains.
Less affected by market noise
Instead of stressing over every small dip or spike in the market, positional traders zoom out and focus on the bigger picture. It lets you filter out the short-term noise and concentrate on long-term trends and fundamentals.
Less Time-Intensive
Unlike day trading, that requires constant monitoring, positional trading offers a more relaxed approach. Positional traders don’t need to watch every market move in real-time; they need to manage their positions with minimal daily oversight, allowing flexibility in terms of time.
Less involvement
Positional traders have a long term outlook, which means they’re less affected by short-term market manipulations. It’s a much calmer way to trade, as you don’t need to constantly check the market. With fewer trades to manage, you gain more flexibility in your daily schedule.
How to use Positional Trading Strategies?
To succeed as a positional trader, learning technical analysis and fundamental analysis to spot trends and assess risks is extremely important. While it may seem straightforward, it takes serious research and a strong understanding of the market.
Fundamental Analysis:
Start by analysing the company or asset that has caught your eye, focusing on its financial statements, earnings, growth potential, and industry trends. Based on your analysis, you believe the company’s stock has been overlooked by most and it seems undervalued. This could be your moment to take a long position, betting on the stock’s potential to rise over time.
Technical Analysis:
After finding a strong asset with solid fundamentals, the next step is using technical analysis to pinpoint the perfect moments to buy or sell – you need to look at historical price patterns, spot key support and resistance levels, and read the chart for clues.
For example, if there’s a stock that’s been steadily climbing, and then suddenly it dips—this pullback to a support level could be your golden opportunity to jump in.
Price Indicators:
Key indicators like the 50-Day and 200-Day Moving Averages, Relative Strength Index (RSI), and MACD can help confirm trends and give you more data to base your decisions on. For example, when a stock’s 50-Day Moving Average crosses above its 200-Day Moving Average (a “golden cross”), it signals the potential for a long-term upward trend.
Most importantly, positional trading relies on holding positions for weeks or months, so patience is key. You don’t need to react to daily market noise. Instead, stick to your long-term outlook and trust your analysis.
Positional Trading Strategies
Here are some key strategies to help you trade smarter and more effectively:
Support and Resistance Trading
When you are watching the price of a stock, you’ll notice there are certain points where it either struggles to go higher or refuses to drop further. These are what traders call support and resistance (S&R) levels.
For example, if a stock keeps bouncing off a certain price without falling further, that’s your support. If it can’t break past a certain high, that’s your resistance. These levels help you decide if it’s time to hold your positional trade for long, expecting prices to rise, or whether you go make a trade for short term and profit from an expected dip.
50-Day Moving Average Trading
As a positional trader, you want to follow the trend of a stock and look for the bigger picture, instead of getting lost in its daily price swings. That’s where the 50-Day Moving Average comes in. It is the average of the closing prices of stocks in the last 50 trading days or ten weeks. When plotted across a price chart, you can see that it becomes a smoother line reflecting the overall trend over the last 50 trading days.
If you are tracking a stock, and its 50-Day Moving Average is steadily rising; this tells you prices are gradually increasing – this is when you decide to hold your position for the long term.
Pullback and Retracement Trading Strategy
Imagine you’re watching a stock that’s been climbing steadily. Suddenly, the price dips for a short while, only to resume its upward journey—this dip is what’s called a pullback. It’s like the stock taking a breather before continuing its climb. For positional traders, this is the perfect opportunity to jump in and ride the trend upwards.
On the flip side, a retracement works similarly but doesn’t necessarily mean the trend is over. It’s just a short-lived price correction before the overall trend gets back on track. For example, if a currency pair pulls back, savvy traders might see it as a chance to buy in at a better price, knowing the overall trend is still intact.
Both pullbacks and retracements are signals for traders to time their entries and enter the market at more favourable prices.
Breakout Trading Strategy
Seen those stocks that keep bouncing between the same price levels, unable to break through? And then, one day, the price shoots past that resistance level—this is what traders call a breakout. As a positional trader, you can jump in right as this trend takes momentum, expecting the price to continue its surge.
For example, let’s say a stock has been stuck at Rs 100 for weeks and finally breaks past it; as a trader, would take a position, hoping to profit as it climbs higher. Whether you’re in for the long haul or just grabbing quick gains, a breakout can be the perfect moment to act if the market swings in your favour!
Sector Rotation Strategy
Positional traders shift their investments between sectors through sector rotation based on the changing economic landscape. By keeping a close eye on macroeconomic indicators, they anticipate which sectors are set to thrive in the medium to long term.
For example, if traders sense a recession, they move their investments into defensive sectors like healthcare, which tend to remain stable in tough times. Later, when the skies clear and the economy begins to grow, they shift gears and invest in more cyclical sectors, like technology, to ride the wave of economic expansion. This strategy is all about being in the right place at the right time, with the right sector.
Unlock the Power of Positional Trading with Elearnmarkets
Positional trading is perfect for those who prefer a less stressful approach than intraday or swing trading. However, it requires a solid understanding of company fundamentals and learning technical analysis.
If you’re a beginner looking to master these skills, Elearnmarkets has you covered. With expert-led courses, masterclasses, and mentorship programs, we make financial education accessible, helping you confidently navigate your positional trading journey.
Frequently Asked Questions
- Which timeframe is best for positional trading?
In positional trading, the best time frame for a trader depends on his/her strategy and risk appetite. Some of the most frequently used time frames by such traders are 60 mins charts, Daily charts, and Weekly charts, depending on whether the position will be held for a short term (days), medium term (weeks) or long term (months).
- Is positional or intraday better?
The better option between positional and intraday trading depends on how much risk you can take and how much time you can dedicate to trading.
Intraday traders focus on short-term data, charts, and the latest news to make quick decisions throughout the day. Positional traders, on the other hand, look more at the long-term fundamentals of a company to decide when to buy or sell. They still use charts to figure out the best times to enter and exit, but they don’t have to track the market constantly.
This makes positional trading more flexible and manageable for people who don’t want to dedicate all their time to trading.
- Is positional trading risky?
One of the biggest risks associated with positional trading is trend reversal. Unexpected reversals in price trends can lead to sudden, substantial loss. However, this trading strategy is far less risky than intraday trading as positional traders are not bound by time – they are protected from the daily price fluctuations.
