Best Positional Trading Strategies: In the fast-paced world, trading can be tough for people with full-time jobs. It often demands constant monitoring, which can be challenging. Luckily, positional trading can be a solution for such people.
This approach requires less frequent checking, making it a more feasible option for those who need to balance work and trading. In this article, we look at the 5 Best positional trading strategies that can help you in achieving favourable returns.
What is Positional Trading?
Positional trading also referred to as long-term trading is a type of trading strategy that involves holding a position in a security for a long period of time with the goal of achieving huge returns. The period of these trades can range from a couple of days to even a few months.
This trading approach involves the traders parking a large sum of capital in a security and aims to capture a huge price movement in the market. Here, the traders tend to ignore the short-term fluctuations in the prices due to which they are less active in the market and are required to be patient.
As the duration of the positional trades can range for more than a month, one can execute positional trades either through the cash or futures market. If you choose to execute positional trades with futures contracts, you will have to roll over the futures contracts if the security takes more than a month to reach the expected target.
Let now look at the top 5 position trading strategies that can help us identify trades in the market
5 Best Positional Trading Strategies
The five ways in which one can enter positional trades include Breakout trading strategy, Reversal Trading strategy, Pullback strategy, Moving average crossover strategy and event-based trading. Let us see now understand how to trade using each of these strategies:
Best Positional Trading Strategies #1 – Breakout Trading Strategy
The price of the securities often tends to reverse from certain levels which signifies the level of support and resistance. When the price breaks beyond these levels, it signifies a new trend in the market.
When a security breaks beyond the resistance level, it is an indication of a bullish trend and one can enter a long position in the security. When a security breaks below the support level, it is an indication of a bearish trend and one can enter a short position in the security.
When a security breaks beyond the level of support and resistance, it is better to be accompanied by trading volumes as it validates the breakout strength.
There is no exact profit target when you enter a position using this strategy. The profit target can be determined using the risk-reward ratio or any other technical tool. One can also use the trailing stop-loss method where the stop-loss moves along the security price.
Best Positional Trading Strategies #2 – Reversal Trading Strategy
When the price of a security has moved in a specific direction and it reaches near support or resistance levels, the momentum tends to reach exhaustion. This creates an opportunity to enter a position in security as it can likely reverse.
One can enter a long position in security if it has consolidated near its support level. The stop loss for this trade should be a few points below the support zone.
When the security has consolidated near it resistance level, one can look to enter a short position in the security. The stop loss for this trade should be a few levels above its resistance level.
The profit target for these trades can be set using support/resistance levels or technical indicators. You can even use a trailing stop loss which can help you capture the maximum movement in the reversal
Best Positional Trading Strategies #3 – Pullback Trading Strategy
This strategy involves taking advantage of a temporary pullback that occurs between the significant trend in the security. Here, the traders try to earn profit from the continuation of the overall trend which faced a pullback.
When the security price gets a minor pullback from its uptrend, one should look for buying opportunities as soon as the price resumes to move in an uptrend. The stop loss for this trade should be a point below the level of entry.
When the security price gets a minor pullback from its downtrend, one should look for selling opportunities as soon as the price resumes to move in the downtrend. The stop loss for this trade should be a point above the level of entry.
Best Positional Trading Strategies #4 – Moving Average Crossover Strategy
Moving average crossover is a positional trading strategy where you use the 50-period and 200-period moving averages in order to identify the term in the security.
When the 50 MA crosses above the 200 MA, it is an indication of a bullish trend in the market and one can look to enter a long position in the security. The stop loss for this trade can be placed a few points below the point of entry.
One can book profits from the trade when the 50 MA closes below the 200 MA or when the price moves below both the moving average.
When the 50 MA crosses below the 200 MA, it is an indication of a bearish trend in the market and one can look to enter a short position in the security. The stop loss for this trade can be placed a few points above the point of entry.
One can book profits from the trade when the 50 MA closes above the 200 MA or when the price moves below both the moving average.
Best Positional Trading Strategies #5 – Event-Based Trading Strategy
Event-based trading is a type of positional trading strategy that involves taking advantage of the inefficiencies that may occur due to economic or corporate events. Corporate events can include mergers/acquisitions, restructurings, bankruptcy, spinoffs, takeovers, and others.
An event that will positively impact a security can likely increase its price and one can look to enter a long position in the security. An event that will negatively impact a security can likely decrease its price and one can look to enter a short position in the security.
As event-based trading is mainly based on the events of the market, one can have to keep a strict risk-to-reward as technical analysis may not work in these types of situations.
Advantages of Positional Trading
The positional trading strategy provides traders with the following benefits given below:
- As positional trading focuses on the medium to long-term trend in the market, it can result in huge returns over time.
- Traders can avoid short-term fluctuations in the market as positional trading focuses on the long-term trend.
- Positional traders do not need to constantly monitor the stock as trades are carried out on a longer timeframe.
Disadvantages of Positional Trading
The following are the potential downsides of positional trading strategy:
- Positional trading requires traders to hold a significant amount of capital for an extended period.
- As positional trading exposes traders to overnight risks like unexpected news or events that can lead to potential losses.
- Positional traders may miss out on a number of trading opportunities as their capital will be allocated towards a long-term trade.
As we conclude our article on 5 Best Positional Trading Strategies, it is important to note that these patterns may guarantee success every time. Thus, one should always use these strategies in conjunction with other technical tools to get better accuracy while trading. One should also have strict risk management in place as positional trading will involve trading in huge amounts.
Written By Aaron Vas
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