There are several ways of making money in the stock market as well as in other financial markets. A few market participants make money by deploying their money for quite a long period while others take out the money from the market within an hour or day. There is another type of trader who put their money in the market for a slightly shorter time than the former and longer term than the latter. This style of trading is called positional trading.

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Let’s understand a little more about what is positional trading, how it works, and what investors/traders should remember while getting into this trading style.

What is positional trading?

Positional trading is a trading strategy that involves holding a position in the market for a longer period, usually several weeks or months. The goal of positional trading is to capture significant price movements in a market trend. Positional traders use a combination of fundamental and technical analysis to identify potential trades and enter them at a favourable price. This approach to trading is popular among investors who seek to capitalize on long-term trends and avoid the noise and volatility of short-term trading. However, positional trading has its own set of risks and challenges, including longer holding periods and uncertainty about market trends.

How Does Positional Trading Work?

This is a long-term investment strategy where traders hold positions for weeks, months, or even years. It aims to capture the bulk of a price trend while minimizing the impact of short-term market fluctuations.

Positional traders typically rely on fundamental analysis to identify stocks that have long-term growth potential. They analyze various factors such as company financials, industry trends, and economic conditions to identify stocks that are likely to perform well in the future.

Once a suitable stock has been identified, the trader will buy it and hold it for an extended period, waiting for the price to appreciate. The trader will enter a long or short position and hold on to it until the trend begins to reverse. The goal is to capture the bulk of the trend, rather than trying to buy and sell at the exact top and bottom.

What Should We Remember While Positional Trading?

This trading style is slightly safer as compared to other trading styles, like intraday trading and scalping, however, if you don’t have a plan or if you don’t stick to the plan, you might lose out on a winning trade. Here are a few points that we should keep in mind while taking a positional trade.

1. Have a clear exit strategy

Before entering a position, it’s important to have a clear exit strategy. Traders should have a predetermined plan for selling their position, whether it’s based on a certain price target, a change in market conditions, or a specific event.

2. Consider risk management

Positional traders need to have a solid understanding of risk management. They should be aware of the risks associated with holding a position for an extended period, such as simple news can bring the prices down drastically as happened with Adani stock recently.

3. Stay disciplined and patient

Positional trading requires discipline and patience. Traders need to have a long-term outlook and be prepared to hold their positions for an extended period. It’s important to resist the temptation to make short-term trades based on emotions or market fluctuations. They should also not panic if the price of their stock fluctuates in the short term. They should remember that they are investing for the long term and that short-term fluctuations are normal.

4. Monitor the position

Even though positional traders hold their positions for an extended period, they still need to monitor their position regularly. Traders should keep an eye on market conditions, market-related news, and other factors that may impact their position.

5. Use fundamental analysis

This type of trader relies heavily on fundamental analysis to identify stocks that have long-term growth potential. They analyze various factors such as company financials, industry trends, and economic conditions to identify stocks that are likely to perform well in the future.

6. Diversify the portfolio

The trader of said category should consider diversifying their portfolios to minimize risk. They should consider investing in a variety of stocks from different sectors and industries to reduce their exposure to any single stock or sector.

7. Have realistic expectations

Positional trading is a slightly longer-term investment strategy, and traders should have realistic expectations. They should not expect to get rich quickly with this strategy, and they should be prepared to hold their positions for an extended period.

8. Use technical analysis

These traders should also consider using technical analysis to identify trends and entry points. They can use technical indicators such as moving averages, relative strength index (RSI), and Bollinger Bands to help them make investment decisions.

9. Understand the tax implications

Positional trading can have tax implications, and traders should understand the tax laws in the country. They should consult a tax professional to understand how their trades will be taxed.

10. Keep emotions in check

As mentioned above, trading requires discipline, and traders need to keep their emotions in check. They should avoid making investment decisions based on fear or greed and stick to their investment plan.

11. Stay informed

Positional traders need to stay informed about the market and their investments. They should regularly read financial news and company reports to stay up-to-date on market trends and company-specific news.

By following the above-mentioned guidelines, investors can implement a successful positional trading strategy and potentially achieve long-term growth in their portfolios. However, it’s important to remember that no investment strategy is fool-proof, and investors should always do their due diligence before making any investment decisions.

Conclusion

Positional trading is a great way to make money if practiced by following a trading plan that involves the points discussed above. Also, beginners should always opt for this trading style because it involves lower risk than others albeit if risk management practices are not followed properly, it can also lead to huge losses. So, be careful and subscribe to our blog to keep receiving alerts of our latest published research and analyses.