Position Trading Strategies and Indicators
Position (or positional) trading is a longer-term form of trading where orders are held open for weeks or months at a time. Calmer than swing trading and day trading, yet faster paced than investing for years and decades via savings accounts, it is often chosen by traders who want quick exposure to the markets, don't want to regularly check their stocks, and want to trade on long-term fundamental and technical analysis. Trading and swing strategies differ significantly, as position trading focuses on long-term trends rather than the short-term price movements targeted by swing trading.
Position trading allows traders to hold a position for weeks or months, capitalising on sustained price movements for long-term gains. Among various trading styles, position trading balances long-term stability with active market engagement.
Whether you choose to position trade on forex, stocks, commodities or indices, doing so without a strategy can reduce your effectiveness. To keep your eye on the prize, reduce risk, and more, you need a position trading strategy informed by the right indicators.
What are position trading strategies and indicators?
Position trading strategies are ways traders improve their accuracy and profitability. Unlike day traders, who focus on short-term price fluctuations, position traders employ strategies to capitalise on sustained market movements over weeks or months. They can be based on a certain mode of thought, or on indictors - technical trading data trends which can signify when to open or close a position. By having a strategy in place, you can:
- Stop undue sources of risk from influencing your trades
- Prevent emotions like greed and fear from making you act against your best interests
- Leverage a trading platform to create and adhere to trading objectives, ensuring consistency through choppy markets
- Understand and use platform features, indicators and data
- Identify opportunities and take advantage of them
Position trading involves using these strategies to optimise trades and achieve consistent long-term results. But before you create a position strategy, you must understand the ins and outs of position trading. New to this type of trade? Learn more in our beginner's guide below.
The best position trading strategies and indicators
Want to get more from your indices, stock or commodities trading? With the position strategies and key indicators below, you'll be able to better understand and take advantage of the markets. As with any strategy, though, always do plenty of research and make sure you understand how it works before risking your capital.
Breakout trading
Due to the medium-to-long-term nature of position trading, identifying periods where prices escape (break out) from their long-term support (lowest price) and resistance (highest price) levels is crucial to making significant profits.
To do this, you can identify securities which are beginning to break out of their historic levels of support and resistance.
Pairing this with fundamental analysis, you can understand why the price movement is occurring. If your analysis indicates a longer-term divergence above the resistance level, you may choose to open a long position to capitalise on the upward price movement, or go short if the support level is breached. Position traders may use breakout signals to enter trades at the start of significant price shifts.
Pullback trading
When the price of an asset is rising, it will often experience pullbacks. These happen when investors engage in profit-taking activity despite the asset's positive fundamentals. The price then performs a retracement, continuing back up higher on its original trend line.
By identifying when these pullbacks are occurring, you can buy the dip without having to wait weeks or months for the price of the security to enter and exit a full-blown reversal. This strategy targets short-term price corrections within a longer-term upward trend.
To understand when is best, use trend lines to work out whether the price drop has gone below the support level, or do the same using moving average indicators. When they cross, a reversal is more likely.
Structural fundamental trading
This position trading strategy focuses on analysing long-term market trends, including economic, social, and political factors, to predict price movements of your chosen security. By analysing market trends, traders can align their positions with macroeconomic shifts for long-term gains.
This approach is good for position traders as it allows them to bring all their qualitative trading skills and knowledge to bear. As an example, you might read several government plans regarding the legalisation of driverless cars – if they are consistently positive, you might invest in a company that provides these technologies or one of their key suppliers.
Reversal trading
When identifying long-term trends in price range, this is a strategy position traders can use to work out when an asset is entering oversold territory.
Here, you would be looking for prices which have been rising for a while but have gone further, escaping their long-term resistance levels. Combine this with fundamental analysis to find events and news which might signify a long-term reduction in price. Using both technical and fundamental analysis ensures a comprehensive approach to identifying reversal opportunities.
If everything adds up, once the price rise begins to tail off and reverse, a sell order could be placed.
5 ways to create an effective position trading strategy
As well as the indicators and strategies and indicators above, when position trading, it's important to understand your priorities and the likely behaviour of the market over the long term. You can do just that with the following five tips:
1. Understand your asset: Due to the long-term nature of position trades, you must have a strong knowledge of the assets you're working with. With stocks, for instance, understand the underlying financials of the company, their prospects compared to the wider economic context, and potential pitfalls in the upcoming economic news cycle.
2. Only trade with funds you can afford to lose: Since position trades use large amounts of capital compared to shorter-term trading methods, it's important you open positions with money that you don't rely on. Carefully determining your position size ensures you manage risk effectively, aligning your capital allocation with your overall trading strategy. Long-term trades can be risky, and your capital could be lost.
3. Set rules: Loss, profit, time in market: all three need to be set before you open a position. Each is dictated by your attitude to risk and broader profit goals, though a good ratio for profit-stop and stop-loss orders is 3:1. Defining precise entry and exit points based on these rules enhances trade discipline and profitability. Position trades, held over a long period of time, require careful planning based on asset fundamentals and market research.
4. Understand market conditions: If your chosen asset has been stagnant or declining sharply due to unfavourable market conditions, it may not suit your position trading strategy. Market fluctuations can signal whether an asset is suitable for position trading or better suited for shorter-term strategies. A good rule of thumb is that positional trades work best in strong bear markets.
5. Keep emotions at bay: When trading over such a long period, you may feel the urge to regularly check your trades. Try not to, as the more you check, the greater the likelihood of succumbing to fear or greed. The result? You go against your pre-set trading rules and damage your profits.
Choose Tradu to put your position trading strategy to the test
Effective, iron-handed position trading starts with strategy. Whether you’re a cautious or aggressive type of trader, Tradu’s tools support your position trading strategy.
With the indicators, approaches and tips above, you should have everything you need to get started in the markets with Tradu.
Tradu’s platform supports trading in spread bets and CFDs, allowing position traders to diversify their strategies across forex, stocks, and indices.
Educational guides and free trading accounts on the best possible platforms are all ready and waiting. Get started trading in listed stocks and CFDs on forex stocks or indices today.