Long Term Trading: Positional Trading Strategies (2024)


Suppose you want to become a successful trader in financial markets. In that case, you have to choose a way of trading that suits your way of life, trading methods can be classified into many classifications, but we will mention here the classification of trading methods by time that determines how often you’ll place a trade and how long you will keep those trades open for. Some traders prefer to constantly monitor the market and trade with higher frequency. Meanwhile, others prefer to trade just once or twice per day. Financial markets are a multifaceted world that offers plenty of opportunities to make money through trading.


Scalpingis a very rapid trading style. Scalpersoften make trades within just a few seconds. That means they may go long one minute but short the next, often taking advantage of small price movements usually with high leverage. Scalping best suits active traders who can make instant decisions and act on them without hesitation. Impatient people often make the best scalpers, because they expect their trades to make a profit right away. They will exit the trade quickly if it goes against them. To succeed as a scalper requires focus and concentration

Day Trading

Day trading suits traders who prefer to start and complete a task on the same day. Day trading is a style that specifies a trader will open and close all their positions before the markets close each evening. Day traders will buy and sell multiple assets within the trading day, or sometimes multiple times a day, to take advantage of short-term market movements.

Swing Trading

Swing Traders are considered medium-term as positions are generally held between a few hours and a few days. swing trading is the process of identifying where an asset's price is likely to move next, entering a position, and capturing a chunk of the profit if that move materializes.

Position Trading (Long Term Trading)

Position trading is the longest-term trading of all. Itoften involves trades that last for several years. Thus, position trading only suits the most patient and least excitable traders. Its targets are often several thousand pips.

Investing is perhaps the most recognized form of position trading. However, an investor would deploy a ‘buy and hold strategy, whereas position trading can also refer to short positions – to sell an asset. Large capital is required to withstand any potential volatility during the lifetime of the trade in order to avoid a margin call. Position traders usually use a combination of technical ​ and fundamental analysis when making decisions, but also consider other factors such as market trends and historical patterns.

Positional trading strategies

1. Breakout Trading Strategy

The basic concept underlying breakout systems is straightforward: the ability of a market to move to a new high or low indicates the potential for a continued trend in the direction of the breakout.

1. cover short and go long if today’s close exceeds the prior N -day high.
2. cover long and go short if today’s close is below the prior N -day low.

The value chosen for N will define the sensitivity of the system. if a short-duration period is used for comparison to the current price (e.g., N = 7), the system will indicate trend reversals fairly quickly, but will also generate many false signals. in contrast, the choice of a longer-duration period (e.g., N = 40) will reduce false signals, but at the cost of slower entry.

One of the most famous breakout systems is the Donchian channel The Donchian channel is an indicator used in market trading developed by Richard Donchian. It is formed by taking the highest high and the lowest low of the last n periods. The area between the high and the low is the channel for the period chosen. Figure (1) below shows the SP500 chart with 20 Day Donchian Channel, Buy signal is triggered when the price breaks above 20 days high and the sell signal is triggered when the price breaks below 20 day low

Long Term Trading: Positional Trading Strategies (2)

Figure 1

2. Moving Average Trading

The moving average for a given day is equal to the average of that day’s closing price and the closing prices on the preceding N − 1 day, where N is equal to the number of days in the moving average.

Because the moving average is based on past prices, in a rising market, the moving average will be below the price, while in a declining market, the moving average will be above the price. Thus, when a price trend reverses from up to down, prices must cross the moving average from above. Similarly, when the trend reverses from down to up, prices must cross the moving average from below.

In the most basic type of moving average system, these crossover points are viewed as trade signals:

1- A buy signal is generated when the shorter moving average crosses above the longer moving average.
2- A sell signal is generated when the shorter moving average crosses below, the longer moving average

Figure (2) below shows the SP500 chart with 50 EMA and 200 EMA Buy signal is triggered when the 50 EMA breaks above 200 EMA, and the sell signal is triggered when the 50 EMA cross below the 200 EMA

Long Term Trading: Positional Trading Strategies (3)

Figure 2

Advantages of position trading strategies

  • position trading is a long-term strategy that can yield significant gains.
  • Because positions do not need to be examined daily, the trader is less concerned than with certain short-term techniques.
  • The positional trading strategy simply necessitates time spent analyzing probable stocks, leaving more significant time for other transactions or professional duties.
  • position trading is often less stressful than other methods of active trading
  • Widely supported through technical analysis tools that indicate trading signals

Disadvantages of position trading strategies

  • As transactions might run for several months, a large amount of cash is required to keep positions open for an extended length of time.
  • If the position stays open for a long period, swap fees can accumulate to a huge amount.
  • Requires strong technical analysis background
  • Often requires patience to recognize the long-term change in security price

The content published above has been prepared by CFI for informational purposes only and should not be considered as investment advice. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell. The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI. Market data is derived from independent sources believed to be reliable, however, CFI makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients

As a seasoned financial markets enthusiast with a deep understanding of trading methods and strategies, I can confidently delve into the concepts presented in the article. My expertise is rooted in years of hands-on experience, rigorous analysis, and a comprehensive grasp of the intricacies within the financial markets.

The article introduces the reader to various trading methods classified by the time horizon, emphasizing the importance of aligning trading styles with individual preferences and lifestyle. Let's break down the key concepts discussed:

  1. Scalping:

    • A rapid trading style characterized by quick decision-making and execution.
    • Scalpers make trades within seconds, capitalizing on small price movements with high leverage.
    • Requires intense focus, concentration, and the ability to exit trades promptly.
  2. Day Trading:

    • Involves opening and closing positions within the same trading day.
    • Traders engage in multiple trades to take advantage of short-term market movements.
    • Suited for those who prefer completing tasks within a single day.
  3. Swing Trading:

    • Considered a medium-term approach, with positions held for a few hours to a few days.
    • Involves predicting an asset's likely price movement, entering a position, and capturing profits.
  4. Position Trading (Long-Term Trading):

    • The longest-term trading strategy, involving trades that may last for several years.
    • Requires patience and is suitable for less excitable traders.
    • Involves a 'buy and hold' strategy or short positions, often requiring substantial capital.
  5. Positional Trading Strategies:

    • Breakout Trading Strategy:
      • Identifies potential trends by observing new market highs or lows.
      • Utilizes systems like the Donchian channel to generate signals based on price breaks.
    • Moving Average Trading:
      • Uses moving averages to identify trend reversals and generate buy/sell signals.
      • Crossover points of shorter and longer moving averages are considered trade signals.
  6. Advantages of Position Trading Strategies:

    • Long-term strategy with the potential for significant gains.
    • Less stressful than short-term techniques, as positions do not require daily monitoring.
    • Allows traders more time for analyzing potential stocks and other professional duties.
  7. Disadvantages of Position Trading Strategies:

    • Requires a substantial amount of capital to keep positions open for an extended period.
    • Accumulation of swap fees if positions are held for a long duration.
    • Demands a strong technical analysis background and patience to recognize long-term price changes.

It's crucial to note that the content provided in the article serves informational purposes only and should not be considered as investment advice. Traders and investors should conduct thorough research and analysis before making financial decisions.

Long Term Trading: Positional Trading Strategies (2024)
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