Positional Trading : Step by Step Guide for Beginners

1. What is Positional Trading?

Positional trading is an upscale version of intraday trading. It is a common trading strategy which allows the trader to hold and carry his position in the stock market for a longer period of time when compared to intraday. This period can be a day or a week or even a month.

Positional traders don’t look forward for short-term price movements and try to capture and extract profits from longer-term trends. Positional trading is very much similar to investing, but the key difference here is that the buy and hold investors are limited to only going long. Let us now look at some of the commonly practiced positional trading strategies.

2. Positional Trading Strategies

Positional trading involves the evaluation of potential price trends prevailing in the market using technical and fundamental analysis. Some of the commonly practiced positional trading strategies include:

50-Day Moving Average Trading

One of the most significant indicators in positional trading is the 50-Day Moving Average Indicator. 50 is a factor to both 100 and 200, which corresponds to the moving averages of significant long term trends. When the 50-Day Moving Average indicator intersects with the 100 and 200 day moving average indicators, it may indicate the start of a new long term trend which makes it a prominent indicator for positional traders.

Support and Resistance Trading

Support and resistance are two very important levels in the financial markets because they indicate where the movement of an asset’s price is heading. It thus provides an indication to positional traders about opening or closing a position on that particular asset. The trader needs to understand and analyze the chart patterns for implementing this strategy. Future levels are usually indicated by the previous support and resistance levels. It is very commonly observed that after breaking a resistance level it becomes the future support level. Moreover, dynamic support and resistance levels are provided by technical indicators such as Fibonacci retracement.

Trading Breakouts

Trading breakouts are one of the most used and most helpful strategies for positional traders because it indicates the beginning of the next major movement in the market. It helps the positional traders to enter a position in the early stage of the trend. When the price of any asset moves outside the pre defined support and resistance levels it is known as breakout. For implementing trading breakouts strategy, it is important to have knowledge about identifying periods of support and resistance.

Pullback and Retracement Strategy

Whenever there is a short reversal in the prevailing price trend of an asset, it is known as a pullback. Positional traders implementing the pullback and retracement strategy try to capitalize on these pauses in the markets. The main motto of this technique is very simple, buying at a lower price and selling it at a higher price before the market briefly dips, and then buying it again at the next low level. It not only helps the positional traders to book profits in the long term trends, but also helps in avoiding the possible market losses. The pullback and retracement strategy involves using various retracement indicators like Fibonacci retracement.

3. Benefits of Positional Trading

When a trader uses the above positional trading strategies with proper experience and knowledge, positional trading can prove out to be a great trading style. The main benefit of positional trading is that it gives you the freedom to use multiple trading styles. You can practice intraday and swing trading depending on the market trends with positional trading. Positional trading also allows you to make the most out of the huge movements in the stocks over weeks and months. One of the biggest advantages of positional trading which makes it a great alternative to intraday is that you can do all this without keeping yourself glued to the screen for the whole trading session. It involves minimal time provided you have a trading plan based on proper research.

4. Positional Trading Risks

Investments in the market are subject to risks. Positional trading is no different. There are some risks associated with positional trading too. Some of the most common risks include low liquidity and trend reversal risks. Whenever there is an unexpected reversal in trend of an asset prices, it results in substantial losses for the positional trader. Positional trading also requires the investor to block their capital for longer periods of time. It is therefore recommended to have your risk profile evaluated before stepping in to the world of positional trading.

If you want to trade in the market but your time commitment is not allowing you to be a full time intraday trader, then positional trading may be right for you. Positional trading can be a great alternative to intraday trading provided that you trade with proper knowledge and research.