Positional Trading Strategy – Trade like a Hedge Fund Manager

What Is Positional Trading And Intraday Trading

The positional trading strategy made the top 25 highest-earning hedge fund managers which generated $17 billion in profits in 2017. If you want to trade like a Hedge Fund manager, you must learn how to profit from the long-term trends.

If you decide long-term trading matches your style, there are a few things to be prepared for. When holding positions for a long time, it’s certain the market will move against your trade at some point. In this situation, you need to have the conviction to stick to the rules no matter what.

When analyzing the charts, you’re actually analyzing mass psychology. The behavior of the crowds hasn’t changed because fear and greed are human emotions that remain the same.

Mass psychology plays an extremely important role for successful traders. Position trading is the best way to take advantage of financial market psychology. You can also read about our best fractal trading strategy.

First, you’ll need to understand what positional trading is. In other words, we will outline what the best positional trading strategy is.

The good news is that these positional trading indicators work across all asset classes. They also work across different time frames.

Now…

Let’s start by explaining what is the meaning of positional trading.

See below:

What is Position Trading?

Position trading involves holding trades for weeks, months or even years. Position trading is another form of investing. People hold their positions long-term with the expectation that they will become profitable.

While ‘investing exclusively’ refers to going long, ‘position trading’ can also embrace selling. This makes position trading more suitable for trading any type of market, including stocks, bonds, commodities, Forex, and cryptocurrency. It allows you to be both long and short.

Studying the fundamentals of the market you’re about to trade can help you better understand the long-term trends. However, by using our proprietary positional trading indicators, you won’t have to be concerned with fundamental analysis.

Moving on…

We’re going to share 3 secrets to know if you should hold a position for the long term or just get in and out of the market fast.

See below:

How to learn Positional Trading

What Is Positional Trading In Indian Stock Market

The best strategy for positional trading is the one that can incorporate the following 3 trading concepts:

  1. Pay attention to the long-term market trends
  2. Specialize in one or more financial markets
  3. Set a trailing stop loss to lock in profits

Now…

Let’s briefly break down each of them.

#1 Pay Attention to the Long-Term Trends

This might sound pretty obvious, but trends are the most important component of a positional trading strategy. So if you want to master this thing you need to become manic about trends.

Keep track of the biggest trends you can find in your personal trading journal.

You don’t know how to spot a trend?

Don’t worry, we’ve got your back covered.

If you want to spot trends like a pro check our guide here: The Right Side of The Market – Trend Trading Strategies.

Moving on…

#2 Specialize in One Market 

Financial markets are made by a different type of instruments including stocks, ETFs, currencies, cryptocurrencies, commodities, etc. You’ll probably get overwhelmed if you try to keep track of everything under the sun.

Don’t make things harder than they need to be. To start on the right foot, narrow down your options to a single currency pair, or a single stock, or a single cryptocurrency.

By focusing on one or two markets you allow yourself to identify the best trends to ride.

Moving on…

#3 Set a Trailing Stop to Lock in Profits

Setting a trailing stop-loss order is a more efficient way to manage your positions.

Unlike static stop-loss orders, trailing stops allow you to lock in profits while you ride the trend. As a position trader, it’s hard to monitor your positions around the clock. So, it can be useful to place a trailing stop loss so that the trend doesn’t shift gears without you knowing it.

Now…

Let’s explore some of the reasons why traders might want to choose position trading.

See below:

Why Should You Learn How to Do Positional Trading?

Each trading style is unique and worth doing. But the most important factor you need to consider is whether or not position trading best suits you.

To find out if position trading strategies are for you, consider these things:

  • How big is your account
  • How much time you can spare to trading
  • What are your financial goals
  • Last but not least, you should consider your risk tolerance

Let’s not forget that in the grand scheme of things your trading experience can also make a difference.

So, why are so many traders interested in position trading?

Primarily, position trading is not that fast-paced as day trading. This means you have more time to plan your trades ahead. In other words, you don’t have to be glued to the screen all day long.

At the end of the day, it’s up to you to decide if position trading is good or bad for you.

Moving on…

Let’s go one step forward and see the main differences between position trading and swing trading.

See below:

Positional Trading vs. Swing Trading

Position Trading Vs Swing Trading

Swing trading is all about catching both upswings and downswings in the market. But, position trading seeks to take advantage of long-term trends from the higher time frames which can last a few months.

Obviously, with swing trading, you’ll get far more trading opportunities but at a greater risk.

If you’re a risk-averse investor, you’re probably better off sticking with positional trading.

Now…

If you’re still wondering:

“Is position trading for me?”

Then, most likely you can try another trading style that is more appealing to your needs.

But, we recommend if you’re a beginner to try out position trading, as it will give you more time to learn the ins and outs of trading. Secondly, if you have a limited time on your hands due to a 9-to-5 job, again you can pick either positional trading or swing trading – as you see fit.

Before we go any further, take out a piece of paper and a pen. We recommend writing down the rules for this entry method.

In this article, we’re going to look at the buy-side.

*Note: When trading long-term, you can’t go lower than the daily chart.

Positional Trading Strategy

In this section, we’re going to explain what the best positional trading strategy is. You’ll learn how to capture the long-term trend. Our long-term strategy uses the best positional trading indicators. This is because the indicators will help us time the market better.

We are going to use the following positional trading indicators:

  • 200-day EMA
  • 50-day EMA
  • Stochastic RSI

The 50-day and 200-day exponential moving averages are regarded as the most powerful moving averages for position trading. These two moving averages can be used to time the overall market trend by simply studying the MA crossover.

When the short-term moving average – 50-day MA, crosses above the long-term moving average – 200-day MA indicates a bull market going forward. This also refers to being the golden cross.

Inversely, when the short-term moving average – 50-day MA, crosses below the long-term moving average – 200-day MA indicates a bear market going forward. This also refers to as being the death cross.

Best Positional Trading Strategy

This combination of technical indicators between a moving average and the Stochastic RSI indicator works because the oscillator is comparing the closing price to its price range over a certain period of time. You can also read on How to Profit from trading.

This combination of positional trading indicators is highly productive if used to its fullest potential.

*Note: In order for this positional trading system to work we need to use some special settings for the Stochastic RSI indicator (%K=200; %D=50).

Positional Trading Indicators

We can’t reveal the secret behind this fixed stochastic setting. We have shown you enough so you can have a better chance of riding the long-term trends. Also, read about Personality Strengths and Weakness in Forex Trading.

Step #1: Wait for the Stochastic RSI to develop a crossover below the 20 level

Moving averages are lagging indicators. This means that by the time a moving average crossover happens, the trend has already been put in motion. You might be missing a good portion of that trend.

Besides this, you also have to use quite a large stop loss when trading moving average crossover systems.

The solution to this crossover flaw is to use the Stochastic RSI indicator with our special settings. Basically, the Stochastic RSI’s moving average will signal a golden crossover before the moving average crosses over. This can give us a tremendous advantage when getting into a trend earlier. We also have training for building a foundation before a forex strategy matters.

What Is The Best Positional Trading Strategy

The first signal that a bullish trend is about to start is when the Stochastic RSI produces a crossover below the 20 level.

But, since all technical indicators are prone to false signals, we have another confirmation signal that needs to be satisfied before pulling the trigger.

See below:

Step #2: Buy when the Price breaks and close above the 200-day EMA

The 200-day exponential moving average is regarded to be one of the most powerfully moving average and positional trading indicators to determine the direction of the trend. When the price of any given market is trading above the 200-day EMA, that’s considered by most technicians to be a bullish signal.

It’s smart to assume that once we break above the 200-day EMA a bullish trend will emerge.

We buy at the market only after we have a closing price above the 200-day EMA, which confirms the breakout.

What Is Positional Trading And Intraday Trading

Now, if we had waited for the golden cross, we would have missed a good portion of the trend.

Please, see below the different entry strategies and see by yourself how superior our positional trading strategy is:

Positional Buy Meaning

This brings us to the next important step that we need to establish for our long-term trading strategy, which is where to place our protective stop loss.

See below:

Step #3: Place your protective Stop Loss below the most recent swing low

We tested many different strategies to protect our hard-earned money, and when trading long-term trends, we’ve found out that the most convenient way to hide your protective stop loss is below the most recent swing low.

Our stop loss strategy will accomplish two things:

  • First, it will give the long-term trend enough room to breathe.
  • Second, it uses the price points on the chart which signal a change in the price structure and subsequently a possible change in the trend. And when this happens, we want to be out of the trade.

Positional Trading Strategy

Last but not least, we also need to define where we take profits when trading with the trend.

See below:

Step #4: Take profit when the Stochastic RSI crossover happens above the 80 level and when the price breaks and closes below the 50-day EMA.

Two trading conditions need to be satisfied when taking profits.

First, we again use the Stochastic RSI, because it gives us an earlier signal of an imminent change in trend direction. In this case, we look for a crossover to happen above the 80 level, or in other words, when we are overbought.

However, we need a second confirmation from the price which needs this time to break below the 50-day EMA as well. Waiting for the death crossover to happen will be detrimental to your PnL because you’ll give back to the market some of your profits, which we want to avoid.

Position traders are also referred to as “buy and hold” traders because they hold onto their trades for weeks, months and possibly even years.

Position Trading System

*Note: Above is an example of a BUY trade using our long-term trading strategy. Use the same rules for a SELL trade – but in reverse. In the figure below, you can see an actual SELL trade example.

Position Trading

Positional Trading FAQ

Is positional trading profitable?

If the positional trading strategy is implemented the right way, it can yield multi-week or multi months worth of profits. Positional trading allows for large profits to be accumulated as the trend matures itself.

Is positional trading good?

Positional trading is a great trading style if you have a 9 to 5 job and can’t monitor the markets all day. Position trading is the opposite of day trading and a potentially less stressful way to make a profit.

What is positional trading in stock market?

Positional trading is an upper-class version of day trading where a position in the stock market is held for the long term. The goal of position traders is to first recognize the big picture trends and then ride that trend.

Why positional trading?

Position trading is less stressful, more profitable and it requires less time to watch the markets. The appeal of position trading is that it takes out a lot of the intraday noise and you’re only focusing on the long-term trends where the smart money is.

What is the difference between Positional trading vs. Swing Trading?

The main difference between position trading and swing trading is the first strategy focuses on long periods of time (months or years) while the second strategy focuses on buying and selling short-term price movements within days. The second difference between the two trading styles is that swing trading has more trading opportunities than position trading.

Conclusion – Positional Trading Strategy

When you use our positional trading strategy, the expectation of making great profits can increase considerably. To be a successful trader, position trading requires a lot of patience and discipline and not get panicked by short-term market moves.

So, if you’re super-patient, and if you use the right positional trading indicators you can consider yourself lucky because you have all you need to trade long-term. Here is another strategy on how to make money trading.

Warren Buffet, the world’s greatest money-maker, understood that the key to successful long-term investing is simply leaving your positions alone and doing nothing. Nothing on the planet earth can produce wealth like capturing a long-term trend and using the power of compounding.

Thank you for reading!

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5 Comments

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  1. You have given values for K and D but for lengthRSI and lengthStoch, can the values of 14 and 14 be suitable?

  2. Stochastic RSI has actually 4 parameters i.e. length of RSI, length of Stochastics, K Smoothing & D Smoothing as seen on TV terminal. As mentioned by you, %K=200 & %D=50 either we are not able to understand or its not working on TV terminal. Please elaborate. Otherwise, I think this is the best strategy to follow particularly for long term positional traders / investors.

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