In stock market, technical indicators are mainly used for intraday trading or options trading, but they can be used to enter into positional trades or for long-term trading. Fundamental analysis is considered mainly for long-term investment but many investors still use technical analysis or technical indicators to buy a stock at the lowest price or at the best point to get the maximum returns.
In technical analysis, you can find multiple technical indicators available that you can use for day trading or short-term trading. But for positional trading, only a few indicators are more useful and can give you a more reliable indication to enter or exit from the positional-based trade positions. So, right here we are going to discuss about the best indicators for positional trading or you can sue for long-term trading.
Best Indicators for Positional Trading:
Exponential Moving Average
Exponential Moving Averages (EMV) is one the most popular technical indicator that can be used for various time horizons. Based on trading time perspective or how long you want to keep your trade positions you can adjust its parameters or values taken to find out the average price for various days.
The 50-day moving average is one of the best moving averages for positional trading, and you can also use it for long-term trading. However, the 50-day moving average line is used in combination with both 100 and 200-day moving averages as a factor to interpret the crossovers.
Also Read: How To Use Best Moving Averages for Intraday or Day Trading
When the 50-day moving average line crosses the 100-day and 200-day moving average lines from below, it means a bullish trend is likely to start. While the fast-moving average line (50-day EMA) crossing the slow-moving average line from above shows a bearish trend. You can use these indications to enter into your long-term trade position with the perspective of getting returns from such crossover.
Support and Resistance
It is another very useful technical indicator suitable for positional trading. This indicator simply tells where the market or stock price is taking the support when it goes down and where it is taking the resistance while moving upward direction. These two are crucial points which not easily broken by the price, as these points work as the entry and exit points for the traders.
Also Read: Support and Resistance: How to Find Support & Resistance
The resistance works like a confrontation where the stock price stops or turns back or struggles to break out unless there is huge volume or when buyers dominate the sellers. You can use this point to book profits in your long-term or positional trade position or go for short-selling to earn profits when the price comes down.
Similarly, the support works as a base point where a falling stock price stops or turns back into the uptrend or it can consolidate. You can use this point as a buying level to enter into a long trade position or book profits in your short positions. A stock price might consolidate at this point before heading towards in any direction. However, when sellers dominate the buyers, the stock price can break down the support levels and further move in the downward direction showing a negative trend.
Stochastic Relative Strength Index
The stochastic RSI (Relative Strength Index) indicator is the combination of RSI and Stochastic Oscillator that oscillates between the range of 0 and 1. This range is used to identify if the market or stock price is trading in the overbought or oversold zone. It is a momentum-based technical indicator that can help you in positional trading to catch the stock when moving in the overbought or oversold trading zone.
If stochastic RSI is reading above 0.8 it means the price is overbought, while on the other hand when this indicator is reading below 0.2, then it is considered oversold. The turning back of the price while trading in the overbought zone is considered a bullish trend. While the overbought situation is an indication of a downtrend likely to come in the coming days. However, you should confirm the price fluctuation and then take the right action of trade.
Fibonacci Retracement Tool
It is one of the best technical indicators or you can say a trading tool you can use for long-term trading. This is also used to identify the supports and resistances of a stock price, especially after a long rally or trend. When you apply this indicator you can see multiple values in terms of percentage showing the retracement points, and these values are called the Fibonacci ratios.
To find out these values, you can measure the vertical distances between the low and high points of the stock's price and you will get ratios like 23.6%, 38.2%, 50%, and 61.8% that can be used when there are noticeable price fluctuations. These ratios are percentages of correction in the price movement that can happen or a stock can retrace after an upward movement.
Also Read: How to Use Fibonacci Retracement for Trading: Setting & Strategy
From the long-term trading or positional trading perspective, you can choose two points one at the high price point and another at the low price point. In trading is used as the pullback retracement strategy to enter into the trade position at the right retracement point. When retracement occurs within a trend, it indicates you put your trade orders in the direction of the ongoing trend.
Strategies for Positional Trading
Merely using the right technical indicator for long-term trading would be not enough to earn profit from positional trading. A right trading strategy is another important factor you need to consider that can help you to enter into the right stock at the right time at the right price. Swing trading is one the best trading strategies you can opt for positional trading with the right swing trading strategies.
Moreover, you can use the breakout or reversal and pullback trading strategies for positional trading. A breakout from a trajectory in which the stock was moving sideways can be used as a trading breakout strategy for positional trading. Here you can enter into such trade positions at the start of the trend to take advantage of early movement with the potential to get the maximum returns.
Pullback and reversal strategies can be used when the direction of stock price movement temporarily changes. And this kind of situation can arrive when there is a market disruption, you can utilize this as a positional trading opportunity. Apart from this, you can also use various other technical indicators like MACD and Stochastic Indicators with a combination of chart timeframes to trade in positional stocks.
Summing-up
In long-term trading, you have to hold a trade position for more than one day, which means you have to take the delivery of the stock in your demat account that you can sell later when a profit occurs. However, in positional trading too, you need to perform fundamental and technical analysis both. For intraday or very short-term trading, you can avoid fundamental analysis, but for positional trading or holding the underlying security for a few days, you also need to consider the fundamental analysis.
Also Read: How to Select Stocks Using Fundamental Analysis: How to Use
But to enter into a trade position or find the stock at the lowest levels with strong fundamentals you need to apply the technical indicators that can tell you the current trend of the stock with potential buying and selling levels. For positional trading, you can use indicators like support and resistance, moving averages, stochastic RSI and Fibonacci Retracement to get the best indications. The best way to use these indicators is TradingView where you can get free access if you open a demat account with Moneysukh.
