Position Traders Strategy: Trading in the stock market is one of the most profitable types of investment in the world. Individuals enter the market for the purpose of increasing their wealth over time.
And trading over a shorter time period requires constant monitoring of stock which most individuals find difficult. In these circumstances, positional trading can be ideal for individuals to trade in the stock market.
In this article, we will be discussing positional trading and the Position traders Strategy.
What Is Positional Trading?
Positional Trading is a trading strategy where individuals buy stocks and hold them for a long period of time. This period can range from a day, a week, or even months.
Because of this, the individuals will have great profit potential but it does come with its own set of risks. The aim of positional trading is to profit from the sustained long-term movements of an asset, rather than the short-term fluctuations seen in day trading or scalping.
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Position Traders Strategy
Now that we have understood the meaning of Positional Trading, we shall now look at the various Position traders strategy that is generally used in the market.
Support And Resistance Trading
Support and Resistance levels help you determine if the price of the stock is likely to fall into a downward trend or rise to an upward trend. Here, you buy and sell stocks within the range of the support and resistance levels in a higher time frame.
First, you identify a stock that goes up and down in a zone, thus creating a channel. You then buy the stocks near its support level, keeping the stop loss below its support, and sell the stock at the resistance level.
You can also use the help of the technical indicators to identify the support and resistance levels which you can use to buy and sell the stock
Breakout Trading Strategy
Breakout Trading is a trading strategy where you aim to enter a stock during the initial phases of its trend. A Breakout Strategy serves as a cornerstone for trading significant market swings
While using this strategy an individual will enter the long position when the stock breaks above its resistance levels and sell the holdings when the stock starts retracing from its trend. In order to trade using this strategy, being familiar with the support and resistance levels is important.
50-Day Moving Average Trading
The 50-Day Moving Average Indicator is one of the key indicators used in positional trading. A 50-day MA is used along with 100 & 200 days MAs which represent the long-term trends.
The method of using this strategy is to buy the stock when the 50-day moving average cross crosses above the 100 and 200 Day moving average which signifies the beginning of a new long-term trend. Here, the stop-loss must be executed immediately below the most recent swing down.
Pros Of Position Traders Strategy
- Position trading is less risky when compared to swing trading and day trading because of its long-term component. If anything goes wrong in the market, traders have a chance to review their investments and make necessary adjustments.
- By using both technical and fundamental analysis, position trading strengthens the method’s dependability. In order to offer a more accurate and analytical method of appraising equities, it combines the two approaches.
- By combining both fundamental and technical analysis, individuals can make positional trading more reliable.
- Position trading can help individuals profit from the overnight movements that happen the majority of the time. The individuals have more chances of benefiting from these movements as opposed to day trading which requires you to enter and exit the stock at precise movements.
- As Position trading is done in a larger timeframe, it requires less monitoring of the share price as compared to swing and day-trading
Cons Of Position Traders Strategy
- As position trading is done on a larger timeframe, it requires the individuals to lock in a large sum of money for an extended period of time.
- As a large sum of money is required to increase the number of profits earned by an individual, any price swing in the opposite direction will increase the chances of the invested funds being lost.
- Though position trading carries lower risk than swing and position trading, there are chances of making mistakes that can go bad. This can cause individuals to lose both time and money.
In this article, we discussed the meaning of Positional trading, different position traders strategy, and the pros & cons of position traders.
Positional trading aims to profit from stocks’ consistent long-term moves rather than the small changes found in day trading or scalping.
Having a good grasp of the market, being able to recognize underlying factors that can affect the price of an asset, and effective risk management strategies. Traders should also have a distinct entrance and exit plan.
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