Positional trading is a long-term investment approach that involves holding a trading position for an extended period, typically from several weeks to months or even years, to capitalize on long-term trends in the market. Position traders are trend followers who identify a trend and an investment that will benefit from it, then buy and hold the investment until the trend peaks. They are less concerned with short-term fluctuations and are more interested in markets that have well-defined trends and narrow price ranges, rather than markets that experience high volatility and wider trading ranges.
Position traders may use technical analysis, fundamental analysis, or a combination of both to make their trading decisions. They also rely on macroeconomic factors, general market trends, and historical price patterns to select investments which they believe are about to go higher. To be successful, a position trader has to identify the right entry and exit prices for the asset and have a plan in place to control risk, usually via a stop-loss level.
Position trading is a good strategy to implement when the market is on a bull run or when macroeconomic factors are indicating the growth of a particular sector or overall growth of the economy and nation. It requires traders to have a long-term outlook and to avoid getting caught up in short-term market fluctuations, which can help reduce stress and emotional involvement, leading to better decision-making and more consistent trading results. However, it also has limitations and drawbacks, such as limited trading opportunities, large capital requirements, exposure to market volatility, limited flexibility, and long-term commitment.
