Position Trading: Strategy, Timeframe and Risk
Updated: Oct 29
Position trading aims to hold an investment or trade through a substantial part of a longer-term move. Decisions may combine business fundamentals, market themes and weekly or monthly price structure, while accepting that wider stops and overnight gaps require careful sizing.
In This Guide
Key concepts and calculations
The original Financial Wisdom guide and media
Practical limitations and risk controls
Frequently asked questions
Related guides and source material
Key Takeaways
Holding periods usually range from weeks to months or longer.
Fundamental and technical evidence can be combined rather than treated as rivals.
Wider price movement generally requires smaller position size for the same account risk.
Earnings, macro events and overnight gaps remain important risks.
A position still needs an exit thesis and review schedule.
Original Financial Wisdom Guide
How do position traders make money?
Positional trading is a type of trading that aims to profit from medium and long-term trends by being invested for periods ranging from a few weeks to months, sometimes even years. A positional trader holds positions much longer than a day trader or a swing trader, capturing a significant part of a trend.
Positional traders are always capturing big moves, riding the winners, and eliminating losers on the way. They are next in line with long-term investors as far as the time horizon is concerned.
Positional traders transact less and get more from each trade, unlike swing or day traders, who take smaller profits and even smaller losses in each trade. A small number of trades add up to the bulk of profits for a positional trader, unlike that of a swing trader, whose profits are more distributed to a large number of trades.
Types of Positional Trading
Positional trading can be purely technical or fundamental, or a mix of both.
Fundamental Positional Trading
Some fundamental positional traders have a good knack for recognizing trends early. They take large positions when they are convinced of a trend and often come out the other side with considerable profit. Such traders also keep a check on risk and ensure that the portfolio doesn’t suffer irrecoverable losses.
*Don't forget the % gain required to recover from a loss*
The other fundamental traders, who can’t develop high conviction, play it safe with a slightly diversified portfolio with a more optimized position sizing. They play by their sacred rules of entry, exits, stop losses, and profit-taking.
Technical Positional Trading
The purely technical positional traders rely mainly on price patterns or technical indicators and tools to enter the trade. As they are looking to hold positions for longer terms, their stop-loss rules are loose when compared to that of a day trader or a swing trader.
The entries and exits for a technical positional trader can all be based on technical parameters or a mix of technical parameters and self-made rules. For example, a trader’s entry and exit criterion may be a 200-day moving average crossover or the entry could be based on the moving average crossover and the exit criterion could be an absolute 50% profit.
Techno-funda Positional Trading
A trader who uses a mix of technical and fundamental parameters waits for the time when both are aligned to enter a trade. The exits are most likely based on technical parameters because price reaction always precedes the fundamental change.
Important tools for positional trading
Sales/Earnings Growth
Growth in sales or earnings is what drives a stock’s performance most of the time. The current and anticipated growth in earnings determines how favourably the market views a stock. If the expected growth is high, the stocks also get valued higher than the overall market.
Any stock’s price is determined by the multiple it gets on its earnings and sales (price-EPS, price-sales, etc.). A high-growth stock deserves a higher multiple than a stock with languishing growth. In euphoric phases of markets, high-growth companies command multiples that are beyond everyone’s expectations.
As a positional trader, you can do extremely well if you get on stocks that are available at low multiples and can potentially see high earnings growth. Such stocks can see explosive price performance if both, multiple expansion and earnings growth come together.
I personally focus on Quality metrics from a stocks fundamentals, other positive fundamental factors are seen as a bonus....
Even loss-making companies see good price-performance if they are seeing high rates of growth in their sales numbers. That happens because the market foresees positive and growing earnings in the future.
Story/Theme
Many positional traders track the developments in companies and industries closely and form a view on how things should pan out. Once they find a tradable opportunity based on their view, they can position themselves accordingly and profit as events unfold.
For example, a trader can closely monitor new drug filings and approvals of pharmaceutical companies to figure out if any company can get a profitable drug approved. New drug approvals can be turning points for many pharmaceutical companies and if you can make an informed guess about that, you can make great returns.
Traders can also follow themes and get good returns. For example, the dot-com boom was fuelled by the internet theme, the big shorts in the subprime crisis were based on the housing market collapse, and recently the marijuana legalization theme is running hot amongst investors. You can bet on themes as broad as the internet or as narrow as a ban on plastics in a portion of a country.
Technical Indicators
While there are a host of technical indicators that positional traders can use, here are the most popularly used indicators.
Moving Averages
Positional traders generally look at medium-term and long-term moving averages like 50 days or 200 days, respectively. You can also look at smaller timeframe moving averages to precisely time your entries and exits.
Oscillators
Oscillators like the RSI and MACD are quite popular amongst positional traders. Different traders use them differently as per their strategy. Some buy oversold and sell overbought, while some buy overbought and keep riding till the time the stock remains overbought. There are many combinations of oscillators, you need to figure out what works best for you
Trendlines
Though trendlines are open to wide interpretation, they are very powerful when riding a position. You can develop a mix of trendlines analyzing past data and come up with a set that works best.
The Final Word
One can confuse positional trading with long-term investing, though they are different in more than one way. Most long-term investors buy with a premise to be with the stock till it continues to do what they expect it to do and exit when things don’t go as planned. In some cases, such investors have held stocks for decades, while in other cases they have exited in weeks.
However, positional traders need speedy returns, they can’t wait for decades. Therefore, they look for medium-term trends that can be highly profitable. Even if they catch a couple of good themes every year, their job is done.
If you are someone who doesn’t want to wait too long for returns and at the same time can’t be on the screen during market hours, positional trading can be your thing. It requires less time and less action than other forms of trading like swing or day trading. As with all forms of trading, the returns will depend on individual skills, capability, and market conditions.
Practical Limitations
Historical examples and indicator signals are educational illustrations, not forecasts. Results depend on the chosen market, timeframe, data, costs and execution assumptions. Test complete rules rather than selecting only favourable examples, and define the maximum account risk before entering a position.
Put This Into Practice
Position trading benefits from a connected weekly decision process. The Financial Wisdom Trading Blueprint links company selection and entries with stop placement, position sizing and ongoing trade management.
Frequently Asked Questions
How long does a position trader hold?
There is no fixed duration; positions may last weeks, months or longer while the thesis and trend remain valid.
Is position trading passive investing?
Not necessarily. A position trader normally has explicit selection, risk and exit rules even with a long holding period.
Can position trading use stop losses?
Yes, though stops may be wider than in short-term trading and position size should be adjusted accordingly.
Further Reading
References and Further Reading
Educational information only. Trading and investing involve risk, including the possible loss of capital. Examples are illustrative, not guarantees of future performance, and nothing in this article is personalised financial advice.
About the Author
Written by Gareth, MBA
Gareth, founder of Financial Wisdom, has more than 30 years of personal trading experience. He competes in the United States Investing Championship, creates award-winning trading content and has been featured in Technical Analysis of Stocks & Commodities.
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