Every trader or investor dreams to time the market, they wish to take a position that gives maximum profit and minimize the losses. It is a well-known fact that timing the market is impossible even with the most detailed research, strong analytical skills, and years of experience. But, some traders make the most out of the market by following a technique called Position Trading.
Position Trading is a long term investing approach which follows the strategy of buy-and-hold for months or even years. This strategy ignores short term price movement and focuses on the growth in the long term. Therefore, it differs from all the trading strategies.
Traders who follow Position Trading strategies are known as position traders. In the market, going with this trend can reap great profit-making opportunities. Position Trading runs on the principle of buying and holding stocks based on a trend or a theme that is expected to boom soon, and when the trend is at its peak and the industry is seeing substantial growth, the stocks are sold off to gain profits.
How is the trend identified?
A position trader identifies the trend in the market or the economy and invests in the stocks of those companies accordingly. These trends can be sector-specific, seasonal or even long term trends. A few of the examples of such trends can be expanding demand for electric vehicles, renewable energy generation, etc. Such trends are based on multiple factors which can be identified through various tactics.
The trader generally uses multiple tactics to identify the trend like technical and fundamental analysis to understand the market sentiment. Another major source of trend identification lies in macroeconomic factors. Apart from these three, historical prices, price changing patterns and other data points are also used to identify the trends.
Passive Investors vs. Position Traders
Few learners misunderstand Position Trading as a part of investing or passive wealth creation, but it is not true. The buy-and-hold strategy is followed by investors who are looking for some long term gain and capital growth while Position Trading refers to keeping an eye on the market regularly to analyze the trends. A positional trader may invest for the long term depending upon the time for a trend to reach its peak, but they keep a sharp watch on the market to take or exit at the right time.
Advantages of Position Trading
Position Trading strategy is considered as one of the best strategies for many reasons. When a trader knows about the plausible chances of a trend to pick up soon, they are more likely to more money and maximize the gains. No trend is probably for a short term that is bound to fade in just days or weeks, it generally lasts for months or decades. Thus, there is no need to create short term strategies to hedge against the other bets in the market.
This is also a major advantage as it gives mental peace and allows one to focus on other aspects like transactional activities that require attention. Very little energy is wasted behind the research aspect due to the availability of advanced tools that give the gist of the market within minutes. Position Trading can surely be referred to as a hybrid strategy as it comes with peace of investing and gains of trading in a few cases.
Limitations of Position Trading
Position Trading is relatively a long term trading concept. A huge amount of capital is blocked until the trend starts to see its peak. Multiple trends can hit the market at the same time, which demands a pool of capital available to cash on such opportunities. Though the price fluctuations generally occur in the short term, there can be a huge washdown of capital in case of major price changes.
Predicting the next movement of the market is difficult, therefore one wrong move and the trader can lose all the money. Maintaining patience and taking positions at the right time are two crucial aspects of Position Trading. A trader losing it can lead to huge losses, both monetarily and timewise. The risks involved are much higher here, as there are chances of a trend not getting well to its peak or being ahead of its time.
To summarize, Position Trading is a tool to gain good returns by capitalizing on the trend based on the proper analysis and identification of the trend potential.
FAQs
Position Trading is a long term investing approach which follows the strategy of buy-and-hold for months or even years. This strategy ignores short term price movement and focuses on the growth in the long term. Therefore, it differs from all the trading strategies.
What is the concept of position trading? ›
Position trading is a popular long-term trading strategy that allows individual traders to hold a position for a long period of time, which is usually months or years. Position traders ignore short-term price movements and prefer to rely on more precise fundamental analysis and long-term trends.
How to learn position trading? ›
Here are some popular positional trading strategies that Indian traders can consider: Support and Resistance Trading: This strategy involves identifying key support (lower price limit) and resistance (upper price limit) levels on a stock chart. Traders aim to buy near support levels and sell near resistance levels.
What is trading knowledge? ›
Traders must understand how to calculate and manage risk, set stop-loss orders, and determine position sizes to protect their capital. Trading Strategies: Knowledge of various trading strategies is crucial. Traders should be familiar with strategies like day trading, swing trading, trend following, and options trading.
What is the difference between position trading and long term investing? ›
Long term and short term investing are the processes by which an investor can buy and sell shares. In positional trading, a trader buys a stock of a company and decides to sell it after many days, months, or even years to potentially get higher returns on the money invested.
What is the best indicator for positional trading? ›
One of the most crucial indicators for positional trading is the 50-day moving average indicator. The moving averages of the long term patterns are indicated by 50, a factor of both 100 and 200.
Is positional trading easy? ›
While positional trading might seem straightforward and easy to execute, it does come with its own set of risks. So, it's crucial for traders to consider all factors and have solid risk management strategies in place to protect themselves if things don't go their way.
How do I choose stocks for position trading? ›
Look for companies with solid financials, a competitive advantage in their industry, and a history of delivering consistent earnings growth. Additionally, consider factors such as industry trends, market conditions, and macroeconomic indicators that may impact the future performance of the stock.
Which timeframe is best for positional trading? ›
60 mins charts, Daily charts, and Weekly charts are the most frequently used positional trading time frame to take a positional trade. Spotting the trend of the stock on the weekly chart is necessary. This is your prevailing stock trend, and you need to take your trades based on this trend.
How long do position traders hold? ›
A position trader is a type of trader who holds a position in an asset for a long period of time. The holding period may vary from several weeks to years. Other than “buy and hold”, it is the longest holding period among all trading styles.
The 3-5-7 rule is a simple approach to managing your trades. Here's how it works: as your trade gains value, you take profits at three different levels—3%, 5%, and 7%. This method helps you lock in profits gradually, instead of waiting and hoping for a bigger win that might never come.
Which trading is best for beginners? ›
Swing trading is most suitable for beginners due to this low speed. In fact, the chance of success is also the highest here - but the risk must still be taken seriously! Although they are particularly well suited to trading for beginners, few newcomers opt for swing trading strategies.
Can I trade without knowledge? ›
Trading can be profitable, but it requires knowledge, discipline, and risk management. Success depends on market understanding, strategy implementation, and emotional control. Many traders face losses, so it's essential to continuously learn and adapt.
What is a position trading? ›
Positional trading meaning refers to the strategy of holding stocks for an extended period to benefit from long-term trends and market movements.
What is the difference between swing trading and position trading? ›
Swing traders capitalize on short-term swings in an asset's price over the course of a few days, to as long as a few weeks. Position traders, on the other hand, hold their positions much longer – sometimes for months or years.
Why long term investing is better than trading? ›
In the long run investing is the best option, but investing needs good capital to gain good returns. Where as trading has never been a regular income. Basically trading is high risk high return. One can create good capital for investment through trading.
What is the basic concept of positioning? ›
Positioning refers to the place you want your brand or product to have within a particular target market. More specifically, the process of market positioning and brand positioning involves how you market your brand or product to consumers to achieve that position.
What is the concept of position? ›
Position is a place or point where something or someone is located or has been placed in relation to other things. In physics, we discuss the position in relation to an x, y axis.
What is the difference between order and position trading? ›
You can place trades to open or close a position immediately, whereas an order is an instruction to do so at some point in the future if the price reaches a pre-specified level.
