The best positional trading strategies
If you want to trade stocks but can’t keep up with day-to-day fluctuations and don’t want to commit to long-term investments, positional trading might be ideal for you. Let’s understand positional trading strategies and how they can benefit your financial goals.
What is a positional trading strategy?
This is a common trading strategy that allows traders to hold and maintain their position in the stock market longer than the intraday timing. This period can be a day, a week or even a month. As a result, the profit potential is greater, but so is the risk.
Position trading can be considered the premium version of day trading. The position trader wants to correct the long-term trend and make a profit without waiting for short-term price movements. Position trading is similar to investing, but the main difference here is that a buy and hold investor is limited to a long position.
For example, a well-known position trader, Philip A. Fisher was not only a great investor, but he was also followed by many fans, including Warren Buffett, and made big investments focusing on good companies that provide encouraging data. In 1955, Fischer made a long-term investment in Motorola stock, a position he held until his death at the age of 96.
Positional trading has grown in importance over the years because it avoids one of the most significant dangers of intraday trading: the need to level a trade before the end of a trading session. Positional trading allows you to hold positions for one or more days, weeks or months, depending on your goals. Positional trading has no specific time frame; instead, it can be chosen depending on the nature of the transaction.
The most common risks in position trading include low liquidity and trend reversal risk. Whenever there is an unexpected reversal in the price trend of an asset, it results in significant losses for position traders. Position trading also forces investors to freeze their capital for a longer period. Therefore, it is advisable to assess your risk profile before entering the world of position trading.
When you use a combination of fundamental and technical research to identify potential market trends and dangers before you start a trade or invest, you are a successful position trader.
Positional Trading Strategies
Although position trading may seem easy, it requires extensive fundamental and technical research, as well as a solid understanding of the markets. Here are some strategies to help you trade more effectively:
Support and Resistance Trade
Support and resistance indicators can help you determine whether the price of an asset is likely to fall in a downtrend or rise in an uptrend. Based on this assessment, you can determine whether you want to start a long position and take advantage of weekly, monthly or yearly price increases or a short position and take advantage of price declines that last for a long time.
When trying to determine support and resistance levels, the following three main factors should be considered.
- The most reliable source of support and resistance levels is historical pricing.
- Previous levels of support and resistance serve as indicators of future trends.
- Technical indicators that could provide dynamic support and resistance levels that fluctuate in response to the price of a certain asset.
Small Group Trading Strategy
Breakout trading involves attempting to open the trade during the early stages of a trend. Typically, a breakout strategy serves as the basis for trading large-scale market swings.
A breakout trader, like a support and resistance trader, will normally start a long position once the stock price crosses just above the resistance line, or a short position after the action is dropped below the support level. Therefore, to be an excellent breakout trader, you need to be familiar with spotting support and resistance levels.
50-day moving average
The 50-day moving average indicator is one of the most important indicators in positional trading. 50 is a factor of both 100 and 200, which are moving averages representing important long-term trends. Whenever the 50-day moving average indication crosses the 100-day and 200-day moving average indicators, it can signify the start of a new long-term trend, making it a useful indication for traders. positional. The stop-loss in a trade executed using this approach is set immediately below the most recent decline.
Pullback and Retracement Trading Strategy
A pullback is a small dip or pullback in an asset’s current uptrend. Pullback trading allows traders to take advantage of dips or delays in the upward trajectory of an asset’s price. The goal is to buy undervalued stocks and sell them once the asset has recovered from the setback and resumed its upward trajectory.
Pullbacks are often thought of as retracements, although they are not the same as reversals. A technical indicator called a Fibonacci retracement can help you gauge whether a market decline is a pullback or a reversal.
Benefits of Position Trading Strategies
- Positional trading is a long-term strategy that can generate significant gains.
- The positional trading strategy takes advantage of large stock movements spanning weeks and months.
- Because positions do not need to be reviewed daily, the trader is less concerned than with some short-term techniques.
- The positional trading strategy simply requires time spent analyzing likely stocks, leaving more time for other trades or business tasks.
Disadvantages of position trading strategies
As the saying goes, while every activity has its upsides, it also has its share of downsides. Likewise, a position trading strategy has its own set of disadvantages that you should be aware of before committing to the trade:
- As trades can last for several months, a large amount of liquidity is required to keep positions open for an extended period.
- Transfer fees can add up quickly if the position is open for a long time.
- The positional trading strategy also requires the investor’s capital to be locked in for long periods of time. It is therefore advisable to have your risk profile assessed before venturing into the field of positional trading.
- Deposits are necessary because it is impossible to trade positions with small amounts of money. Therefore, large price changes are more likely to result in a total loss of invested cash.
To identify market movements, positional traders rely heavily on fundamental and technical research. Positional trading can be a good alternative to stock trading if done correctly with analysis and understanding. These strategies are not easy to implement, especially for novice investors, but if you are new to positional trading, these positional trading strategies help you feel more confident in your decisions. Positional trading can be a great alternative to day trading if you trade with accurate knowledge and research.