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What is Position trading? A beginner’s guide to the stock market

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by Ankita Lodh on 26 June 2024,  2 minutes and 44 seconds min read

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Stock markets and volatility are like the two sides of a coin that cannot be separated. If you are a trader, one thing that you cannot avoid is the daily fluctuations of the stocks and tracking them rigorously to make a profit. But what if you lack the time to monitor the daily charts but aren’t willing to make long-term investments? Position trading might be your solution apart from using the top trading app in India.

Among different trading strategies, position trading is mostly preferred by medium-term traders. Let’s understand this trading technique in detail. 

What is positional trading?

Positional trading means instead of buying and selling units on the same day in intraday trading, traders hold their position and maintain it for more than a day. The holding position can be for a week or a month.  

The primary goal of position trading is to spot the bigger picture of the economy and analyse market sentiment to make profits on long-term market direction. For this reason, instead of tracking daily fluctuations, traders keep an eye on the overall trends in the market, company fundamentals, and economic situations.

position trading chart

Source: forextraininggroup

An example of position trading

Let’s understand the concept of position trading with an example. Suppose you want to buy shares in an auto company and try position trading techniques to make profits. You chose to buy and hold the stock for a month because you are confident that the stock will go up after the company’s quarterly results. 

This decision is based on the previous performance, which states the company performed well after the past quarterly result, and you decided to enter the trade and hold the position until the earnings release takes place. 

This trading technique is what we call position trading. With this strategy, traders don’t need to track market volatility on a daily basis but rather the long-term trends in the market. 

Pros and cons of using positional trading on your daily investment app

Now that we have a clear idea of what position trading is, let’s have a quick look at the perks and drawbacks you might get when exercising position trading on the best share market app.

Pros

  • You may make greater profits from positional trading as it is a medium-to-long-term strategy. 
  • As a trader, you can track and make the most of the large stock movements over weeks and even months. 
  • You don’t have to keep track of the stock price movements and minute changes in the prices. 

Cons

While the pros are many, position trading also comes with some drawbacks that you need to be aware of. 

  • For position trading, you need to have a large amount of funds to get started, as the transactions might need to be opened for a long period of time. 
  • You also need to consider the transfer costs that may add up if the position is opened for an extended period. 
  • Since the strategy needs to be kept open for a long period, you need to assess your risk appetite before adopting it.

Bottom line

In beginner stock market tips, exercising position trading strategy is about how patient and disciplined you are throughout the trade. Similar to swing trading, position trading also carries moderate risk. As a trader, you need to be aware of the risks and timeframes that the strategy needs to achieve success in position trading.

 

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