What is Position Trading?

Updated: Jul 4, 2021

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.