Position Trading – Everything You Need To Know About It

Positional trading is a way to invest for the long term that is similar to the buy-and-hold strategy. Traders often use several different strategies to get the most out of the market and position trading is one such popular method. This way of trading ignores short-term price changes and works on medium- to long-term growth. 

Let us talk about what positional trading is, its advantages, disadvantages, strategies, tools, and everything you need to know to get started.

What is the Position Trading

Position Trading

Positional trading is a way of trading in which traders keep their positions open for a long time, usually weeks, months, or even years. The goal is to make money off of long-term market trends instead of short-term changes.

Position traders look at several factors, such as the economy, market trends, and the basics of a company. This is a smart way to trade, but you need to plan it out carefully.

How Does Position Trading Work

When you do position trading, you have to think about the long term instead of buying and selling right away. Traders who do this kind of trade, look at the market for big trends. They don’t trade frequently; instead, they buy stocks that they think will grow over time and hold on to them for some time, like months. 

Even when the market changes, position players stay calm. To figure out the best times to enter and leave the market, they use tools such as trend analysis and moving averages.  

Position Trading saves time and effort because you don’t have to keep an eye on the market constantly to observe frequent fluctuations. 

Examples of Position Trading

Let us understand Position Trading using a simple example.

Assume you bought ‘n’ shares of ‘A’ company. In position trading as you bought these shares, you would hold onto them, let’s say for 2.5 months, given that A’s quarterly analysis will be out in 2.5 months. 

Based on its present and past analysis, you predict that until the next financial year, the company will continue to grow.

So, you enter the trade and hold the stock until that event. This is called position trading.

Advantages & Disadvantages of Position Trading

Position Trading

Advantages of Position Trading

The positional trading strategy has several benefits for traders, some of which are listed below.

1. Positional trading techniques use long-term market trends to generate profit, which can add up and produce significant profits.

2. Positional traders don’t make as many trades as other traders, which can help them lower the costs of each trade. This is because they keep their stocks for a long time, which means they don’t have to buy and sell as often.

3. Traders who use positional trading need to think about the long term and not get caught up in short-term market changes. This can help lower worry and emotional involvement, which can help you make better trades and get better results more consistently.

4. With positional trading, buyers can be more flexible with when they trade. They don’t have to keep an eye on the market all the time or trade often, which can be helpful for sellers who have other commitments.

5. Market fluctuation is less likely to happen to positional traders than to other types of traders. This is because they keep their positions for a long time, which lessens the effect of short-term market changes or rapid market moves caused by market manipulation.

Disadvantages of Position Trading

Traders should also be aware that positional trading methods can have some problems and risks.

1. Positional traders need a lot of money to keep their options open for a long time. They need to meet their margin requirements and make sure they have enough cash on hand to handle any losses that might happen.

2. Traders are exposed to overnight risk when they hold positions overnight or for a long time. Unexpected events or news can make the market move a lot, which could lead to losses.

3. Positional trading methods look at long-term trends, which may reduce the number of trades that can be made. This can make it hard for traders to find chances to make money, especially when markets are volatile.

4. Positional traders need to think about the long term and keep their positions open for a long time, which can make them less flexible when dealing. Traders may find it hard to quickly change their positions when market conditions change.

5. Positional traders may miss out on short-term investing chances because they are focused on the long term.

Position Trading Strategies

Let’s talk about position trading tactics now that we know the basics. Position trading may look easy, but you need to know a lot about the market and be able to analyze both basic and technical factors in great detail. The following are some of the best ways to make positional trades:

Support and resistance trading strategy

You can use support and resistance marks to figure out whether the price of an asset is more likely to go down in a downward trend or up in an upward trend. Using this information, you can choose whether to start a long position to make money when the price goes up once a week, once a month, or once a year, or a short position to make money when the price goes down for a long time.

Support and resistance trading strategy

A support level is the price below which an asset usually won’t fall. This is because people usually buy the asset at this level. The barrier level is the point where the price of an asset stops going up. This is because buyers are less likely to buy the asset at this level. If an asset breaks through resistance, it could mean that prices will go up and hit higher highs. On the other hand, if it breaks below support, it could mean that prices will go down and hit lower lows.

When looking for support and resistance levels, there are three main things to keep in mind.

  • The most effective way to find support and resistance levels is to look at past prices. Normally, periods of significant gains and reductions in price will be used as potential indicators of future movements
  • Position traders can also use past amounts of support and resistance to predict how prices will move in the future. In the case of futures deals, if a support level is breached, it could become a resistance level.
  • Finally, some technical indicators can show levels of support and resistance that change based on the price of an asset.

Breakout trading strategy

By breaking out, you try to get into a trade early on in a trend. If you want to trade big price changes, you usually start with a breakout strategy.

Breakout traders usually start long positions when the price of the stock breaks above the resistance level or short positions when the price of the stock goes below the support level. This is similar to support and resistance traders. So, if you want to be a good breakout investor, you need to know how to find levels of support and resistance.

Breakout trading strategy

Range Trading Strategy

If the market constantly moving up and down, range trading is the best approach to apply. Range trading is especially helpful for forex traders because the forex market doesn’t always have a clear direction.

If you find an asset that has been overbought or oversold, a range trading approach can help you make money. The goal is to buy assets that have been oversold and sell overbought assets. An “oversold asset” might be getting close to the support level in this case, while an “overbought asset” might be getting close to the resistance level.

Pullback and retracement trading strategy

A pullback is a short-term drop or turn in an asset’s generally upward trend. Traders can make money on these dips or pauses in the price rise of an asset by using pullback trading. The goal is to buy low or sell high when the asset finally stops going down or starts going up again.

Pullback and retracement trading strategy

Retracements are another name for pullbacks, but they are not the same thing as reversals. Most of the time, reversals are long-term or permanent changes from the general trend.

The use of a Fibonacci retracement can help you figure out if a market dip is a pullback or a turnaround.

Bonus Read: As a position trader, a Fibonacci retracement is a technical sign that can help you figure out when to open or close a trade.

Position traders draw six lines across the price chart of an asset to figure out Fibonacci retracements. If the First line is at 100%, then at 50%, and finally at 0%. Position traders will then add three more lines at 61.8%, 38.2%, and 23.6%.

The golden ratio, which can be used to find support and resistance levels, says that these numbers should work. Position sellers can choose to open or close a position at these times.

Tools Used For Position Trading

1. Moving Averages: Moving averages help find trends and smooth out price data. Longer-term moving averages, like the 50-day or 200-day moving average, are often used by traders to find the long-term trend.

2. The Relative Strength Index (RSI): This number goes up and down from 0 to 100 and is used to find situations where prices are too high or too low. RSI helps traders spot bullish or bearish divergences, which can mean that the market is changing.

3. Bollinger Bands: A moving average and two standard deviations are used to make a band around the price so that you can see how volatile the market is. 

4. Moving Average Convergence Divergence (MACD): MACD is a momentum indicator that follows trends and shows how two moving averages have changed over time. Traders use the MACD to spot changes in trends and to confirm how strong a trend is.

5. Fibonacci Retracement: This is a tool used in economic analysis to find possible levels of support and resistance in a trend. Traders use the Fibonacci Retracement to find potential times to enter and leave a trade.

Best Timeframe for Positional Trading

Best Timeframe for Positional Trading

Positional trading means keeping trades for a long time, so the timeframe needs to be carefully thought out. Weeks to months are usually the best length of time for this approach. Positional traders look at market trends instead of buying and selling quickly throughout the day like day traders do. This is something that buyers can do with weekly and monthly charts. 

With these longer timeframes, traders can see the general direction of the market more clearly, so they can ride the trend with less noise from short-term changes. 

Position trading is not limited by the minute-to-minute changes that shorter periods focus on. This gives traders the information they need to make smart choices, which makes short-term market changes less effective on their stocks.

Is Position Trading Risky?

Position trading has risks, but not as many as short-term investing. Things like, changes in the market, the economy, and sudden events can affect places that you’ve held for a long time. 

People who want to hold on to their positions for a long time need to be patient and willing to take risks. It’s important to use tactics like stop-loss orders to lower your risks. If you want to make money with position investing, you should know how the market works and how much risk you’re willing to take before you start.

Is Position Trading Suitable For You?

Now that we know all about position trading, Positional trading may or may not be right for you depending on your financial goals, risk tolerance, and trading style. Positional trading can be a good strategy for investors who want to make money over the long run and are willing to hold on to their positions for a long time. You can take advantage of big market trends this way, which can be less stressful than day buying.

Is Position Trading & Swing Trading Same?

A lot of the time, people mix up position trading and swing trading. Even though they are both types of delivery trading, they are not the same at all. Let’s understand with the help of the following chart,

AspectPosition TradingSwing Trading
TimeMedium to Long-termShort to Medium-term
Trade DurationWeeks, Months, or YearsDays to Weeks, Sometimes Months
AnalysisFundamental Analysis and Macroeconomic TrendsTechnical Analysis and Price Patterns
Traders FrequencyLowModerate to High
Emotional ImpactLow StressMedium Stress
Risk IntoleranceLower RiskModerate to Higher Risk
Profit PotentialModerateLow (Frequent Profit Opportunities)
Suitable ForTraders with a Long-term ViewTraders Looking for Short-term Opportunities
The content of the table is taken from Dhan for educational purposes.

Conclusion

There you have it! That’s all there is to know about position trading! From the big picture to the specifics, we’ve talked about it all. It’s a lot like getting good at a strategic game: you have to plan your moves and wait for the big wins. Make sure you remember these tips as you start positional trading. I hope you make smart trades, keep making money, and enjoy the journey. Have fun trading, everyone!

Read Also | Best STP Brokers for Exceptional Trading Experiences

Mostly FAQs

How much money do Position Traders make?

There is no fixed amount of money that position traders can expect to make as it depends on various factors, including the size of their trading account, the trading strategy they use, the market conditions, and their risk management techniques.

What is best time frame for position trading?

The best time frame for position trading depends on the trader’s goals, strategy, and risk tolerance.

What is Position Trading Strategies?

Position trading strategies are long-term trading approaches that involve holding positions for several weeks to several months. Position trading aims to capture larger market trends and profit from major price movements.

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