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What is positional trading? Learn everything you must know about position trading in the crypto space.
A position trader purchases an investment hoping its value will increase over the long run. Unless they change the trader’s long-term perspective on the position, this kind of trader is less bothered by short-term price swings and the day’s news.
It’s possible to think of position traders as the reverse of day traders. They don’t trade frequently; most make fewer than ten trades annually.
Learn what positional trading is below.
What is Positional Trading?
What is position trading? To make money, a trading position is kept for a long time (often weeks or months) in position trading. In position trading, a trader typically has long-term thinking and holds the position for a considerable time despite short-term swings.
The positions could belong (purchase the asset first) and be short (selling the asset first). Traders typically start trading places using long-term charts (weekly, monthly) in this style of trading, which is also known as trend following.
How Does Positional Trading Work?
When asset swings in a long-term trend, positional traders typically attempt to capture the most profitable portion of the move. Most assets, including stocks, exhibit a pattern whereby a significant change in the economic fundamentals drives a shift in price. However, some assets remain inactive for a while before moving due to substantial adjustments to their or the industry’s fundamentals. The asset price experiences an accelerated shift for weeks and months before it pauses if these changes impact the sector’s long-term viability.
The steel sector could serve as a current historical example from the real world. Steel prices rose dramatically, forcing the closure of several after China suffered severe blows to its polluting steel mills. China was the world’s largest supplier of steel. Therefore this shutdown affected the supply there as well. This development caused steel prices to soar, as did the cost of steel producers outside of China.
A positional trader would have bought steel stocks outside of China to benefit from this development. This positional trade would have generated substantial returns over the long term as the story developed over more than a year.
Position Trading Strategies and Techniques
Even though there are no established tactics for positional traders, a trader can choose his trades based on his skill set. Traders typically excel in technical analysis. To make money in trading, some traders go above and beyond to master fundamental analysis. They combine it with technical analysis.
The tactics one can employ in position trading are as follows: –
Only charts are used in a technical method to identify the asset price’s long-term trend. Trades are started when the asset price exhibits a long-term trend behaviour after it has been analyzed for the price, volume, and relative strength. This trade is entirely price-driven and does not consider any fundamental variables.
A fundamental strategy focuses more on the actual variables influencing an asset’s price. The system searches for a fundamental change in the underlying business environment and only considers qualitative factors. The trader can operate considerably more confidently using the primary method instead of merely relying on technical analysis, which is one of its key benefits.
A fundamental techno approach makes trading decisions based on technical and fundamental analysis. Charts are used to examine price behaviour and confirm fundamentals to monitor long-term qualitative development. The trade is carried out if the price reflects the actual change.
These tactics typically employ technical and fundamental screeners to select potential trading bets. In the process of developing their strategies, traders might create entry and exit rules as well as stop-loss rules. When starting to trade, traders should also consider their capital position and market experience.
Positional traders also utilize capital allocation guidelines and stop losses as a risk management tactic to avoid losing everything during volatile market circumstances.
Trading is a risky activity, and traders must develop their skills and put them to the test before finding real success in the market. Additionally, position trading is similar. Position trading requires time to study, comprehend, and understand market movements. Analyzing historical data and identifying patterns is an excellent approach to learning position trading. It becomes pretty simple to design and carry out trading strategies while adhering to basic risk management guidelines once a trader comprehends market patterns.
What is positional trading?
Positional trading is a more sophisticated kind of intraday trading. Compared to trading intraday, it is a popular trading method that enables the trader to keep and carry his stake in the stock market for a long. This time frame can range from one day to one month.
Is Position Trading for You?
Each trading style has advantages and disadvantages, and all investors and traders must balance their trading techniques with their specific goals.
The main factor to consider is why you are investing in the first place. Are you creating a retirement fund? Do you intend to rely on trade for a living? Or are you merely interested in investing and desire a stake in a business?
An up-trending bull market is the best environment for position trading. A bear market does not simply fit into it. Day trading may be advantageous when the market is stable, going sideways, or wriggling around.
Is positional trading profitable?
It offers flexibility because it lets you hold onto your stocks for a lengthy period. It carries a medium-to-low risk. Keeping your stores for several weeks or months can generate high returns over the long run.
How long is a positional trade?
Positional trades entail keeping just shares for some time, ranging from 1-2 days to months, to book profits.