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Guide to Positional Trading Strategy

10 Aug 2023

Introduction

If keeping up with the daily fluctuations of the stock market seems too much of a hassle for you, but you still want to reap profits from the stock market, position training is tailor-made for you. The strategy emphasizes holding medium to long-term price movements in the stock market. This is in stark contrast to day trading, which focuses on buying and closing positions on the same day. Positional trading aims to capitalize on the larger overarching price swings, thus making it a strategy that is well-suited for folks who wish to have a more relaxed approach toward trading. 

What is Positional Trading?

In positional trading, the stocks or positions are held for several days, weeks, or in some cases, even months. This is done so that benefits can be reaped from considerable price fluctuations rather than short-term, low-value price movements. 

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What are the Strategies of Positional Trading?

Since positional trading involves holding stocks for an extended period, there are some tried and tested strategies that help investors make the best choices:

  1. Following Historical Trends: Like most trading strategies, positional trading also involves taking a look at the historical trends of the market to get a better understanding of positions. The only difference is that long-term trends are followed in the case of positional trading. 
  2. Investing in Growing Assets: This strategy focuses on positions that have a very high potential for growth in the future. The aim here is to identify companies that are built on strong foundations and invest in them early, betting on their eventual exponential growth over a relatively longer period. 
  3. Investing in Undervalued Assets: This strategy focuses on assets or stocks that have been undervalued in the market and can be purchased at lower prices. This helps improve profit margins at a later date. 
  4. Momentum-Based Trading: This strategy deals with buying stocks that have a good upward momentum and selling them only when that momentum begins to stagnate. 

Pros and Cons

Pros: 

  1. Long-term strategies allow for greater planning periods. 
  2. The trader is less burdened by the need for constant vigilance.
  3. By virtue of being a long-term strategy, it can yield significantly higher results. 

Cons:

  1. Long holding periods can lead to missed opportunities.
  2. The capital required is exponentially higher, as short-term gains aren’t possible.
  3. The flexibility of the trader is stifled. 

Conclusion

In conclusion, the positional trading strategy offers a comparatively hassle-free alternative to day trading for those who have both the capital and the patience to indulge in it. Since traders can have longer planning periods, a combination of technical and fundamental analysis, risk management planning, and discipline maintenance can lead to traders enhancing their chances of success.

 

Related Articles: Swing Trading Vs Position Trading What Does a Paper Umbrella Candlestick Indicate | How to Find Stocks to Swing Trade | Ultimate Guide to Positional Trading

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