Position Trading Strategy | Backtest and Example Analysis

There are different approaches to trading. While some want to get in and out of the market within the same day, there are those who want to leave their trades on for as long as possible to milk all the profits a trend has to offer. Positional trading fits the latter. But what exactly is positional trading strategy?

A position trading strategy is a method of trading whereby a trader holds a position in the market for a long period (usually several weeks to many months) to extract all the potential profits in the trade. It is focused on capturing the big price moves that happen in a trending market.

In this post, we take a look at the positional trading strategy. At the end of the article, we make a backtest of a positional trading strategy.

What is a positional trading strategy?

Position trading strategy is a method of trading whereby a trader holds a position in the market for a long period (usually several weeks to many months) to extract all the potential profits in the trade.

It is a long-term trading strategy. Rather than aim to capture smaller bits of profits from short-term price moves like day traders do, a position trader purposefully sits in a position for several weeks or even months, waiting for a big price move. The trader rides out the short-term ups and downs of the market price, patiently waiting for their longer-term price objective to be achieved or not.

Position trading is premised on the idea that the market trends. The aim of the position trader is to key into that trend and ride it to its end.

However, position trading is not just about riding a long-term trend because what seems like a trend on the daily timeframe may be a range-bound market on the weekly timeframe. In fact, many position traders have their profit targets before taking a position and often trade between support levels and resistance levels.

Understanding the concept of position trading

The term position trading comes from the concept of taking a position as regards the market direction and sticking with it. Taking a position in the market is comparable to when somebody takes a position on a social issue, where an individual forms an opinion and sticks with it, but in the case of financial trading, the trader takes the position by entering a trade, which can be long or short.

In other words, the trader is taking a position about whether a market will be bullish or bearish for the next several weeks or months. If the trader believes the market will be bullish, he puts his money where his mouth is by making a long trade (buying the asset), but if he believes the market will be bearish, he backs it up with a short trade (short-sells the asset).