Positional Trading: Strategies for Long Term Success

There are various methods of trading in the financial market depending on the needs, risk tolerance, and time frame of the trader. One of these methods is Positional trading. It is unique because its top priority is generating income over a long duration and pursuing the right decisions. But what does positional trading means? In this article, it will be discussed in detail to determine what is positional trading, positional trading meaning, its key differences from other kinds of trading.

What is Positional Trading?

When trading positionally, you keep a long-term fixed position in a financial asset (such as a stock, commodity, or currency) in the market. Positional trading means, a trading that has a broader time horizon than day trading and swing trading, which include buying and selling a commodity hourly, daily, or weekly. The idea that significant price or direction fluctuations might result in sizable returns is one of the core principles of positional trading.

Positional Trading Meaning

Clarifying the meaning of positional trading requires discussing the strategy and techniques used. The act of buying and keeping assets with the hope that their value would rise over time is known as strategic trading. When doing fundamental research, which includes examining the company, its place in the industry, and the state of the economy overall, many traders use this technique. Technical analysis is another tool that may be used to identify the ideal times to enter and exit a trade.

Characteristics of Positional Trading

It is crucial to understand the following characteristics of positional trading to know in detail what positional trading means before proceeding to the step-by-step processes:

Long-term Perspective

The long-term view is one of the fundamental elements of positional trading. Traders ignore the centre fluctuations and focus on long-term movements in prices.

Reduced Transaction Frequency

The turnover is considerably less since the positions are longer-term. It not only results in lower transaction costs but also helps to contain short-term fluctuations.

Fundamental Analysis

Position trading requires fundamental analysis to be as helpful as possible. Businesspeople use a balance sheet, income statement, statement of cash flow, market trends, and other factors to ascertain the intrinsic value of an investment.

Technical Analysis

While fundamental analysis assists in determining the right assets to invest in, technical analysis assists in determining the right time to invest. Traders have techniques that they use when placing orders on the chart, including the use of trend lines.

Patience and Discipline

To achieve a good positional trade, one needs to be patient and disciplined. Traders must be prepared to stay in a position for the long haul, and even when the market dips, they shouldn’t get out of it.

Advantages of Positional Trading

Positional trading offers several benefits, making it an attractive strategy for many investors. Positional trading provides several benefits that make it an attractive strategy for many investors:

1. Lower Stress Levels: Positional trading means fewer trades and, hence, a longer duration of holding the position, which usually creates less pressure than day trading or swing trading. They’re not constantly staring at screens and can make better decisions.
2. Reduced Transaction Costs: Since positional trading involves less number of trades, the expenses associated with each trade, like broker fees and taxes, would be much lower.
3. Potential for Higher Returns: Long-term trends give the positional trader a good chance of making big money in the stock market. It is even more beneficial if the trader analyses an excellent and lasting trend in the market before it starts.
4. Flexibility: A trader can effectively organise his working time in positional trading. Since they do not have to spend most of their time analysing the markets, they can do other things or have different jobs.

Disadvantages of Positional Trading

Despite its advantages positional trading also comes with its own set of challenges: Despite its advantages, positional trading also comes with its own set of challenges:

1. Market Risk: Trading for extended periods puts the traders at the mercy of market changes. Factors such as fluctuations in economic conditions, shifts in a country’s policies, or the rise of a global crisis may negatively impact positions.
2. Capital Requirement: Position trading is typically carried out with relatively large amounts of money since losses may be experienced for long periods while accumulating profits.
3. Patience and Emotional Control: Managing a position when the market is bearish requires a lot of patience and self-discipline. Traders should always avoid executing their trades based on short-term price movements.
4. Research and Analysis: Positional trading requires a lot of research and analysis to produce good results. Market information, economic performance, and any other relevant information possibly affecting positions in the market, needs to be followed by the traders.

Steps to Start Positional Trading

For those interested in exploring positional trading, the following steps provide a roadmap to get started:

Education and Research

Start with learning about the markets and positional trading strategies. Many books, online classes, and seminars can help you gain knowledge.

Choose the Right Broker

Choose a brokerage firm that meets your trading requirements. When choosing an online broker, some key aspects to evaluate include the commissions, trading platforms, and offered financial instruments.

Develop a Trading Plan

One must not proceed to the trading floor without adequate preparation. In this case, preparation is coming up with a clear plan of how somebody should do trading. Explain your investment objectives, defining how much risk you are willing to take, how you choose the securities to invest in, and when to sell them. Stick to your plan of implementing discipline in your everyday activities.

Conduct Fundamental and Technical Analysis

Employ fundamental analysis to select the best stocks and technical analysis to choose the correct entry and exit points. Check on the status of your investments regularly.

Diversify Your Portfolio

Risk can be managed through diversification. Diversify your portfolio and scatter the risk by investing in a range of assets in various sectors or types of investment.

Monitor and Review

Ensure you constantly analyse your portfolio and the market environment. Expect changes in the price movements but do not frequently trade.

Examples of Positional Trading Strategies

Some of the Positional Trading Strategies include:

Buy and Hold

This is a well-elaborated form of positional trading where people purchase stocks with good fundamental characteristics and then wait for several years. The idea is to earn a capital gain from the stock price increase and possibly earn a fixed or variable dividend.

Trend Following

Trend followers look for assets in an upward trend, then maintain long positions in them as long as the trend persists. This strategy is based mainly on technical indicators and aims to define the trend and when it is over.

Value Investing

Graham defines value investors as those who look for common stocks that they consider cheap in terms of their intrinsic value. They trade in a business with a belief that the market will one day accord the correct value to the stock, thus experiencing high-value change.

Sector Rotation

It involves moving funds from sectors with poor business conditions to sectors with favourable business conditions. For instance, if the economy is expanding, a trader could engage in cyclical stocks. The same trader will turn to defensive stocks when the economy is in a contraction phase.

Positional trading meaning is a trading technique that, to be successful, calls for a high degree of market knowledge in addition to persistence and dedication. This trading technique aims to hold onto equities for a long time with the intention of profiting from significant price movements. By using this strategy, businesses may avoid needless price changes that might lead to unnecessary tension. This approach might be helpful for individuals who are prepared to put in the effort to learn spot trading.

Positional buying looks at the long-term trend instead of the market’s short-term swings. Have a plan for your trades, be patient, and spend a lot of time learning. Positional trading may be successful for investors who follow these rules. If you are curious about investing your time and know more about what is positional trading?, SMC Global Securities offers consultations with its specialists if you would like to start trading guides. You might get a great deal of helpful guidance and support from them.

References:
https://www.investopedia.com/
https://www.wallstreetmojo.com/position-trading/

Author: All Content is verified by SMC Global Securities.