Definition of Positional Trading: Long-Term Methods to Win the Game

Positional trading is a type of trading where the trader assumes a position and holds it for a very long time: weeks, months, or even years. Contrasted with day trading when a position is executed within one day. Positional traders make more money based on major economic shifts and company growth so can stomach the ripples that a single day throws.

What is Positional Trading?

Positional trading follows long-term growth. It is not such a reaction to immediate market fluctuations but major market trends in macroeconomic indicators, company fundamentals, and sectoral growth over time. The aim is to benefit from sustained price movements by holding on for a considerable duration. This makes it a relatively relaxed and research-intensive form of trading. Now that we know what is positional trading, let’s move on to explore positional trading strategy.

Understanding Positional Trading Strategy

1. Trend Following Strategy

This strategy means trade in the direction of long-term market trend. If the market is trending up, the trader buys and holds, while if it’s trending down, they may short sell or avoid entry. Its intent is to stay on the trend as long as possible until evidence of a reversal becomes readily apparent.

2. Support and Resistance Strategy

In this strategy, the main emphasis is on those specific levels where the prices bounce or get rejected. This knowledge helps a positional trader place his buy orders near the support levels and sell near the resistance with hopes of price reversal at that point.

3. Breakout Trading Strategy

Breakout trading refers to identifying stocks that break out of a previously defined price range. Usually, a stock breaking above resistance or below support provides room for significant price action. This is what positional traders want to focus on and exploit.

4. Fundamental-Based Investing

This strategy is heavily based on fundamental analysis, which entails the judgment of a company’s earning, management quality, market position, and potential for growth. Investors buy undervalued or those companies likely to perform well in the long term and hold onto them until they reach their actual value.

Advantages of Positional Trading

1. Less Stress

Since the positional trader does not need to monitor the market time-to-time, it is less hectic as compared to other short-period trading strategies like intraday trading. Therefore, it is also suitable for those people who prefer to have a less intensive approach to markets.

2. High Potential Returns

Positional trading allows you to capture broader market moves over time and, therefore, higher profits. You can benefit from long-term trends because you hang on to your assets through various cycles of the market.

3. Lower Transaction Costs  

In positional trading, because the number of trades is relatively low, transaction costs-the brokerage fees et cetera-just tend to be relatively lower compared to trading in day trading when you’ve done multiples of these every day.

Cons of Positional Trading

1. Market Risk

These long-term positions expose traders to risks associated with particular market situations, such as economic slowdowns, industry-specific rule changes, or other company-specific events. Holding a position for months or years means you’re vulnerable to unexpected shocks in the market.

2. Capital Lock-In

Since positional traders hold assets for extended periods, that capital is spoken for; thus, it might be restrictive if alternative opportunities come up elsewhere in the market since your capital might not be available right away.

3. Patience is the Key

Positional trading is a very impatient game. One does not have to trade every day. It takes time before it becomes possible to gain dramatic returns. Investors have to withstand slow growth or stagnant markets sometimes.

Conclusion

Long-term stock market investors prefer positional trading. Trend followers hold positions for long stretches of time, which might help garner big price moves and grows one’s wealth over a period. Whether you’re a positional trader by trend following or fundamental analysis, the key to your success lies in rigorous research, patience, and proper risk management.

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