HomeBusinessPositional Trading Strategies You Can Use in Trading

Positional Trading Strategies You Can Use in Trading

During trading, several traders question what is positional trading? Positional trading is an excellent approach if you prefer to hold long-term positions in stocks and other assets, aiming to benefit from sustained price movements over extended periods. 

It is a strategy well-suited for if you’re patient and have a strong conviction about your market outlook. In this blog, we’ll explore some of the most effective position trading strategies, you can successfully implement them to maximise your returns.

Effective Positional Trading Strategies You Can Use in Your Trade

Support and Resistance

After you open Demat account online, you can use support and resistance as a positional trading strategy. Support and resistance levels are valuable tools for identifying whether an asset’s price is likely to enter a downward trend or climb into an upward trend. This analysis helps you decide whether to take a long position to benefit from weekly, monthly, or yearly price increases or a short position to profit from extended price declines.

The support level is a price point where an asset typically doesn’t drop further, as buyers tend to step in and purchase at this level. On the other hand, the resistance level marks a price where an asset usually stops rising because buyers are less likely to continue purchasing at that point. 

If the price breaks above the resistance level, it may signal further upward movement to new highs. Conversely, if the price falls below the support level, it could indicate a decline to lower lows.

Breakout Trading Strategy

A breakout trading strategy is a technique you can use to enter a position early in the formation of a new trend. The primary goal is to capitalise on substantial price movements that typically follow a breakout from established price levels. This strategy is designed to take advantage of the increased volatility and momentum that usually accompany breakouts.

Breakout trading is somewhat similar to support and resistance trading, but with a key difference: instead of waiting for the price to test support or resistance levels and reverse, breakout traders seek to enter the market when the price moves decisively beyond these levels. 

For example, you typically open a long position when a stock’s price rises above a resistance level, signaling the potential for continued upward movement. Conversely, you may take a short position when the price falls below a support level, anticipating further downward movement.

To be successful in breakout trading, it is essential to have a deep understanding of how support and resistance levels function. Identifying these levels accurately is critical because they represent key points in the market where price reversals or breakouts are most likely to occur. However, simply recognising these levels isn’t enough. 

Range Trading Strategy

Range trading is a widely-used strategy that thrives in markets characterised by frequent fluctuations between highs and lows. This approach is particularly advantageous for forex traders, as forex markets often lack a clear, consistent trend and tend to oscillate within defined price ranges. By capitalising on these predictable movements, you can identify profitable opportunities.

At its core, range trading involves identifying assets that are either overbought or oversold and taking positions accordingly. The objective is straightforward:

  • Buy when assets are oversold: An oversold asset is one where the price has fallen significantly and is nearing its support level. The support level is a price point at which demand typically increases, preventing further declines.
  • Sell when assets are overbought: An overbought asset has experienced a substantial rise in price and is nearing its resistance level. The resistance level is a price point where selling pressure usually builds, capping further price increases.

By buying at the support level and selling at the resistance level, you aim to profit from price reversals within the established range.

Pullback and Retracement Trading Strategy

A pullback refers to a temporary decline or short-term reversal in the price of an asset within its larger, prevailing upward trend. These brief pauses or dips occur when the price takes a break after a strong upward movement. This allows you to capitalise on potential buying opportunities before the trend resumes.

Pullback trading involves identifying these moments of weakness in an otherwise strong trend. You can use this strategy to buy an asset at a lower price during the pullback and then sell it at a higher price as the upward trend resumes. The goal is to “buy low and sell high,” making the most of the asset’s recovery and continuation in its primary direction. The key features of this strategy include:

  • Temporary Nature: Pullbacks are short-lived and usually do not signify a complete reversal of the trend. They are often caused by profit-taking, market corrections, or minor shifts in sentiment.
  • Trend Continuation: The asset typically regains momentum and continues in the direction of the prevailing trend after the pullback.
  • Support Levels: Pullbacks often occur near established support levels, such as moving averages or prior price points, making them predictable entry points for traders.

These trading strategies involve a lot of technical analysis involving charts, which you can do with the help of a stocks app.

Conclusion

Success in positional trading requires a solid understanding of market fundamentals, technical analysis, and risk management. You must be patient and disciplined, focusing on larger market trends and avoiding short-term noise that could lead to unnecessary decisions.

Ready to elevate your financial journey? Welcome HDFC SKY – a cutting-edge brokerage platform designed to elevate your trading experience. Whether you’re looking for growth or stability, HDFC SKY has something for everyone. Don’t miss out on the opportunity to secure your financial future today! Open Demat account and start investing now with HDFC SKY.

 

Must Read