Trading with a strategy in the stock market will not only improve your chances of success but also minimise the impact of potential risks. For short-term or intraday trading, you can use various types of trading strategies, but positional trading, buying any stock on the basis of fundamental analysis, would be not enough. Here you need to follow the right trading strategy.
Positional trading is like holding your trade position for more than one day, and that could be a few days to a week or a month. Because of this, positional trading is also known as long-term trading that involves the trading activities while holding the stocks in your demat account. If you are interested in such trades, we have brought here a long-term trading strategy suitable for positional trading.
Top 5 Positional Trading Strategies
The main motive of exploring such strategies is finding the stock trading at lower levels and likely to bounce back in the upward direction. This trend reversal can happen anytime in upcoming trading sessions, giving you an opportunity to enter and hold your position for a few days. To find such stocks, you can trade with the following positional trading strategies.
Also Read: What are the Best and most Accurate Trend Reversal Indicators
Support and Resistance Trading Strategy
This is one of the most popular trading strategies, allowing you to take advantage of price taking support at the lower end and resistance at the upper end. Support is the point, or you can say the levels where buyers dominate the sellers, stopping the price further down.
On the other hand, resistance is the upper point where sellers overtake buyers, resulting putting pressure on the stock to stop moving further in the upward direction. And these support and resistance points can be used as trading opportunities for positional traders.
When stock is trading around support levels, you can buy the stock that can move back in the upward direction, giving the opportunity to earn profits from such moves. And to find out the more precise buying levels, you need to use certain technical indicators like drawing a trend line, Fibonacci retracement or moving averages to enter at the right levels.
Breakout Trading Strategy
This is another useful trading strategy that can be used for positional trading. In breakout strategy, when a stock is trading in a range or consolidating coming out from this trajectory providing a trading opportunity for the traders when such a breakout happens.
In fact, the breakout strategy can be applied when support and resistance are broken by the price. The stock price takes a resistance when pushed by buyers with volume of trades breaking such a resistance zone. You can enter into such stocks showing substantial moves, but make sure there is no false signal of breakout, as it is well-supported by a significant volume of trades.
Similarly, you can enter in short position when a stock falls below the support levels, which is also called a breakdown, that occurs when sellers overtake the buyers, pushing the stock price to break the support levels. However, in positional trading, shortselling could be risky if you don’t have the physical shares of that company in the same quantity, and don’t forget to trade with a stop loss.
Range Trading Strategy
This could be another useful strategy for positional trading, or you can apply it for long-term trading. A range trading strategy works when a stock price moves within a specific range. Here you need to find out the situation when stock trades either in overbought or oversold trading zones.
Here you can adopt the buying strategy when stock trades in the oversold zone of this trading range and sell when the stock trades in the overbought zone. For positional trading, you can use such a trading range to enter and exit trade positions as per the stock price movement.
Also Read: Best Option Strategies for Sideways or Range Bound Market
However, to identify such overbought and oversold levels, you can use the support and resistance levels, where oversold stocks trade near the support levels, while overbought stocks trade near the resistance levels. Apart from this, you can also use the technical indicators like RSI to identify the overbought and oversold levels, so that you can take advantage of the range trading strategy.
Pullback and Retracement Trading Strategy
When a stock is trading with an upward trend, it does not constantly move up, but it takes corrections or after a long rally, comes down before pulling back to an upward trend. This is called a retracement, allowing an opportunity to buy the stocks on such dips and take advantage of such a long-term uptrend.
Positional traders usually keep watching such a retracement, and when the price corrects and takes support, they tend to buy the stocks when it pulls back towards the upward trend. The level of correction or ratio, how much or where the stock is likely to correct and pull back, can be calculated on the basis of the ratio.
However, sometimes such a retracement is misinterpreted as a trend reversal that is different and can be identified with the help of various tools and indicators. Hence, the best way to recognise such pullback retracement is to use the Fibonacci retracement to see the different retracement levels as per the uptrend movement of the stock and the possibility of corrections.
Triple Moving Averages
For positional trading or long-term trading, using the combination of multiple moving averages as a trading strategy. And here, rather than a simple moving average (SMA), using the exponential moving average (EMA) is more reliable for considering recent price change.
For a long-term trading strategy, you need to use the combination of short-term, medium or intermediate-term and long-term EMAs to visualise the short-term as well as long-term trends. In the short term, EMA, you need to take a 20-day period, for medium-term EMA 50-day period and for long-term EMA 200-day trading period is taken while applying these moving averages on the chart.
You can enter into a long position when the short EMA and intermediate EMA cross above the long-term EMA. While the short-term EMA crosses below the long-term EMA create the opportunity to short sell. Here, you need to confirm the trend, and you can select the stop loss just beyond the long-term EMA and book the profits when the MAS crosses over again.
Wrapping-up
Positional trading allows a trading opportunity to hold your trade positions for a few days, weeks or months until you earn the profits from this trade. Though, the chances of profitability depend on when you choose the stock trading in such levels and you can identify such trading opportunities with the right timing to trade with the right trading strategy. For positional trading, you can use support & resistance, breakout, trading range, triple moving average and pullback retracement like strategies.
Also Read: Top 10 Different Types of Trading Strategies in Stock Market
These trading strategies will provide you opportunity to find the stocks or buy and sell opportunities with a long-term trading viewpoint. And to enjoy a low-cost positional trading facility, you need to open your demat account with Moneysukh, one of the best discount brokers in India, providing the best online trading platform, Moneysukh Pro, at the lowest brokerage charges with Algo trading facility through TradeRadar, Smart Options with best trading strategies by market experts.
