Positional trading is the type of trade that involves holding onto positions for a long time—weeks, months, or even years based on the trend of the long run in the market. Day trading and swing trading are strategies where you execute trades within a very short period.
Positional traders often target attracting enormous movements in the market, fostered by deeper economic trends, with little care about daily movements.
As with any form of online trading, you would need to open demat account, before you get started. Now that we know what is positional trading, let’s move on to its features.
Positional Trading Key Features
1. Long term focus
Positional trading meaning is driven by long term trends. Investors take into consideration macroeconomic factors, sectoral growth, and company fundamentals while deciding. Thus this mode of trading is quite well-suited for the “buy and hold” investor who does not frequently enter trades.
2. Rare Examination
Positional traders do not need to keep track of the market positions day by day. Since the trades are for a long period, daily minor fluctuations in the markets are generally ignored. This consequently reduces psychological strain as well as the time devoted to trading.
3. Fundamentals and Technical Analysis
For the most part, positional traders combine fundamental analysis, which includes examination of the financials of a company, or economic conditions, etc.—with technical analysis that includes charts, indicators, and patterns in order to predict long-term price movements.
4. Risk Management
Given that this strategy usually means holding onto assets in the long term, downturns in the market could have dramatic effects on a portfolio. Therefore, proper risk management-including setting stops-loss-is critical to limit losses.
Key Strategies for Positional Traders
1. Trend Following Strategy
This is the process of finding a market trend and subsequent following of it. Positional traders buy at a rising market or sell during a declining market. The crucial point is to enter a trade after confirmation of the trend, then leave before it reverses.
2. Support and Resistance Levels
Positional traders sometimes set support (a price level at which an asset tends to stop falling) and resistance (a price level at which an asset tends to stop rising) and enter trades in such cases, buying near support and selling near resistance.
3. Breakout Trading
In breakout trading, the investor is searching for price levels at which a stock has previously been unable to breach past. As soon as the stock “breaks out” of such a range, it can be expected to stay in the breakout direction for a significant period of time, making it a good entry point for positional traders.
4. Fundamental-Based Investing
Most positional traders depend on fundamental analysis. Hence, they analyze earnings of the company, growth potential, and the prospects of the industry. They consider holding onto strong stocks with beneficial fundamentals in terms of the long-term growth of the company.
Benefits of Positional Trading
1. Time Efficiency
Since the trades take relatively long periods of time, one doesn’t require making frequent market watches. In fact, this strategy is apt for long-term investors who hate to trade every day.
2. Lower Transaction Costs
As the number of trades is relatively less compared to other strategies such as day trading, the transaction costs in the form of brokerage fees and taxes are relatively low.
3. Potential for High Returns
By holding positions over long periods, traders are able to ride out the short-term market volatility and capitalize on consistent trends. Such a strategy can lead to significantly higher returns compared to the alternatives, namely in short-term trading strategies.
Disadvantages of Positional Trading
1. Capital Lock-In
Since positions are held for a long time, your capital is tied up in the market. If the market moves against you, exiting the trade quickly may lose you extra money, and you may miss another opportunity.
2. Market Risk
Positional traders are exposed to market risks for a much longer time period. Any economy change, recession in the market, or company-specific problem may cause potential loss.
3. Demands Patience
A positional trade is not that easy to achieve success and demands more patience as well as sustained investment for a longer period of time. It’s not for those who want instant gains.
Conclusion
Positional trading suits long-term investors who are okay with holding on to assets for extended periods while hoping to gain from major trends in the market.
This reduces the need of traders to make frequent transactions, minimizes the cost of transactions generally, and keeps them concentrated on the larger picture.
To start with, open demat account with a reliable broker. This will allow you to hold your investments securely and do long-term trading with great convenience. Patience, proper research, and timely risk management are the guiding forces in achieving success as a trader for this mode of trading.
