Positional Trading Strategy

Last Updated on February 2, 2024 by ethinos

Traders worldwide engage in stock trading, seeking financial gains through market activities. While some face losses due to a lack of expertise, others capitalise on trade secrets to make money. Experienced traders choose trading techniques based on their financial goals, time preferences, and trading inclinations. The primary classifications are short-term and long-term trading. Beginners often struggle to choose a suitable trading style. The positional trading strategy, a popular approach in trading, offers a unique way to make money from the markets. If you’ve ever thought about making trades that go beyond daily price changes, this article is for you. 

In this blog, we’ll look at what positional trading is, its benefits and drawbacks, and give you ideas for strategies that work well in the Indian market.

What is Positional Trade?

A positional trade involves entering a trade based on a thorough analysis of market trends and fundamentals, and then holding onto the position for a significant period. This strategy is ideal for those who seek to avoid the stress of constant monitoring and quick decision-making that intraday trading demands. Positional trading gives you the space to make well-informed decisions without being swayed by short-term market fluctuations.

What is Positional Trading Strategy

A positional trading strategy is a trading approach that sits between day trading and long-term investing. Unlike day trading, which involves making quick trades within the same trading day, or long-term investing where you hold onto assets for years, positional trading focuses on holding positions for several days to weeks. This strategy capitalises on capturing larger price movements while avoiding the noise of intraday fluctuations.

Also Read: What is Position Trading?

Is Position Trading for You?

Before we get into the details of positional trading strategy, it’s essential to evaluate whether this strategy aligns with your trading goals and personality. Positional trading requires patience, as you’ll need to withstand interim market fluctuations without being giving in to the urge to exit prematurely. If you’re a long-term thinker who can handle temporary market turbulence, then positional trading might suit you.

Benefits of Positional Trading Strategy

• Less Stress: Positional trading eliminates the need to make quick decisions, reducing stress and allowing you to focus on thorough analysis.

• Bigger Trends: By holding positions for an extended period, you can tap into more significant market trends and potentially capture more substantial profits.

• Less Time-Intensive: Positional trading doesn’t demand constant monitoring of the markets, giving you the flexibility to manage your trades alongside other commitments.

• Avoiding Market Noise: Short-term market fluctuations and noise have less impact on your trading decisions, allowing you to make more rational choices.

Drawbacks of Positional Trading Strategy

• Overnight Risk: As positions are held overnight, you’re exposed to overnight market risks, such as unexpected news events that can impact your trades.

• Longer Holding Periods: If a trade turns against you, the longer holding period might result in more significant losses compared to shorter-term trading.

• Missed Intraday Opportunities: Positional traders might miss out on short-term profit opportunities that intraday or swing traders can exploit.

Also Read: Swing Trading vs Position Trading

Positional Trading Strategies

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.

• Breakout Trading Strategy: Breakout trading focuses on identifying moments when a stock price breaks through a significant level of support or resistance. Traders enter the trade when the price confirms the breakout.

• 50-Day Moving Average Trading: The 50-day moving average is a widely used technical indicator. Traders watch for the stock price to cross above the 50-day moving average, signalling a potential uptrend, and vice versa for downtrends.

• Pullback and Retracement Trading Strategy: This strategy involves waiting for a stock’s price to experience a temporary pullback within a larger trend. Traders then enter the trade when they believe the pullback has ended and the original trend will resume.

Bank Nifty Positional Trading Strategy

Bank Nifty, a sectoral index comprising banking stocks, is a popular instrument for positional trading. One effective strategy involves combining technical analysis, trend identification, and proper risk management. For instance, you could identify an uptrend in Bank Nifty using moving averages and other indicators. Once the trend is established, enter a position and set a stop-loss to limit potential losses. Keep an eye on major support and resistance levels to make informed exit decisions. This strategy capitalises on the banking sector’s volatility while minimising risk.

Using the Best Positional Trading Strategy

The key to success lies not only in the strategy itself but also in the trader’s approach.

• Continuous Learning: Keep yourself updated with market news, economic indicators, and any developments that might impact the banking sector or the overall market. A well-informed trader is better equipped to make informed decisions.

• Backtesting: Before implementing any strategy, including positional trading, it’s wise to conduct backtesting. This involves applying the strategy to historical data to assess its performance. While past performance doesn’t guarantee future results, backtesting can help you understand the strategy’s strengths and weaknesses.

• Patience Pays Off: Positional trading is about holding onto positions through price fluctuations. This requires patience and discipline. Avoid the urge to exit prematurely due to minor price movements, as the strategy banks on capturing larger trends.

Conclusion

Positional trading strategy in India offers a balanced approach between the rapid pace of day trading and the long-term commitment of investing. It offers the advantage of capitalising on significant market trends while avoiding the stress of constant monitoring. The Bank Nifty positional trading strategy, in particular, has gained traction for its potential to yield profits over a relatively short holding period. However, success in trading goes beyond just following a strategy. It requires continuous learning, adaptability, and disciplined execution.

As you begin your positional trading journey, remember that no strategy can eliminate all risks. It’s important to start with a clear understanding of your financial goals, risk tolerance, and a willingness to invest time in learning and refining your approach. With a well-thought-out strategy and a patient mindset, you can navigate the Indian stock market landscape and potentially capitalise on profitable opportunities.