What is Positional Trading?

By Vishweshwar HS,   www.showmytrade.com

Positional Trading is a style of trading holding of the stocks or futures contract usually with a trading range from one week to three months, wherein successive higher highs and lower highs (in the case of an uptrend) and lower highs to lower lows (in the case of a downtrend) of stocks or futures. 

Positional trader, ride on the full movement of both (uptrend or downtrend) side. Trend following traders benefit from both price moving up and price moving down. 

Trend traders identify the direction of the market but do not try to guess any price levels. When they can spot the established trend, they take the position. When the direction breaks, they usually exit their trade position. But in periods of high market volatility, trend trading is more complicated and reduces position size.  

This type of trade may last for one week to several weeks and sometimes longer, depending on the trend.

Position traders are also referred to as “buy and hold” traders because they hold onto their trades for weeks, months, and possibly even years.

Example of Positional Trade

 Ms. Anita bought 500 shares of Infosys Limited at Rs 700/- per share in February end. The stocks started to move to Rs 725 (a higher high than the previous high). Then stock came down to Rs 718 (higher low than last low). Again starts to move to Rs 739 (higher high than the recent high), then began to move back to 731 (higher low than previous low). Once again, step up to Rs 746 (higher high than last low), but this time it broke the previous low of Rs 731 on April 2nd. Ms. Anita booked the profit at this point. The apparent uptrend movement in this stock is over. Capturing such trend moves is called positional trade. 

Similarly, the downtrend can capture with lower high and lower low price movement. Using Future contracts (short), we can capture the downtrend movement. And can rollover the position to the next month’s time till the trend exists.

Merits of Positional Trading

  • More profitable in case of strong trends.
  • Risk is relatively low compared with profit.
  • Traders with alternative jobs can trade at ease.

De-Merits of Positional Trading

  • Huge capital is required.
  • Technical analysis knowledge and tools.
  • Deeper Stop loss can result in considerable risk.

Positional Trade Strategies

Breakout Strategy: In this strategy, looking for a breakout buy either trend line, moving average, or active support and resistance line. Both (uptrend and downtrend) breakouts can be identified with favorable risk to reward one can trade the trend.

Range Trading Strategy: In this strategy, when price moves between two price ranges. A long and short position taken as the case may be between these ranges. Traders use some typical levels — previous highs/lows, Pivot point levels, Fibonacci levels, and areas at which all three of these levels overlap.

Retracement Strategy: In this strategy, when the price is moving in one direction, usually, it cannot keep moving in the same direction. Price pulls back or known as retracements. Trader identifies such level to go the opposite direction, or if the retracement is very minimal, they buy towards the course of the original movement of the stock. Using Fibonacci retracement levels and wave theory, one can catch such price movement.

Bottom Line

Positional trading strategy in the hands of experienced traders, the expectation of making significant profits can increase considerably. A successful positional trader requires a lot of patience and discipline and the nerve to handle the short-term market moves. The more considerable movement of the trend can capture in positional trade.

Related article:  What is Intraday or Day Trading?

Kindly share your comments on the positional trade below. Any information regarding the day trading adds in the next update.

Thanks for reading! Good Earning!

Write a comment



Get Free Updates