Position trading is a long-term strategy that holds positions for weeks, months, or even years to capture major market trends. Unlike day trading or swing trading, position traders ignore short-term noise and focus on the bigger picture, riding trends until they clearly end.
What is Position Trading?
Position trading sits between swing trading and investing:
- Holding period: Weeks to months (sometimes years)
- Timeframe: Weekly and monthly charts
- Goal: Capture major trend moves
- Trading frequency: Few trades per year
Key concept: Position trading requires patience. The strategy profits from big moves that take time to develop, not from frequent trading. Less can be more.
Position Trading vs Other Styles
| Style | Holding Time | Charts Used |
|---|---|---|
| Day Trading | Minutes to hours | 1-min to 15-min |
| Swing Trading | Days to weeks | Hourly to daily |
| Position Trading | Weeks to months | Daily to monthly |
| Investing | Years | Fundamental focus |
Why Position Trading Works
Position trading has several advantages:
- Captures big moves: Major trends can deliver 50-200%+ returns
- Lower stress: No need to watch markets constantly
- Reduced transaction costs: Fewer trades means lower fees
- Time efficient: Analyze markets weekly, not hourly
- Avoids noise: Daily fluctuations do not affect decisions
Finding Position Trading Setups
Weekly Chart Analysis
Use weekly charts for primary analysis:
- Identify the long-term trend direction
- Look for stocks above the 40-week moving average (200 SMA)
- Find weekly chart breakouts or pullbacks
Trend Identification
- Price making higher highs and higher lows on weekly chart
- Weekly chart above 10 and 40-week moving averages
- Monthly chart showing uptrend structure
Fundamental Considerations
Position traders often combine technicals with fundamentals:
- Growing earnings and revenue
- Strong industry or sector trends
- Positive business outlook
- Reasonable valuation relative to growth
Entry Rules for Position Trading
Weekly Breakout Entry
- Identify a stock in a long-term uptrend (above 40-week MA)
- Wait for consolidation or base formation on weekly chart
- Enter when price breaks out of the consolidation
- Confirm with increasing weekly volume
Weekly Breakout Example
Stock forms a 3-month base between $80-$90.
40-week moving average is at $75 (stock above it).
Weekly candle closes at $92, breaking out of the range.
Weekly volume is 50% above average.
Entry: Buy at $93 on breakout confirmation.
Stop: $78 (below the base and 40-week MA).
Target: Let it run, trail stops as trend develops.
Moving Average Pullback Entry
- Stock is in established uptrend above 40-week MA
- Price pulls back to the 10 or 20-week moving average
- Wait for a bullish weekly candle at the MA
- Enter on the following week if strength continues
Monthly Chart Entry
For the longest-term positions:
- Analyze the monthly chart for multi-year trends
- Enter on monthly breakouts from major bases
- Use monthly moving averages for trend confirmation
Exit Rules for Position Trading
Initial Stop Loss
- Below the base or consolidation low
- Below the 40-week moving average
- 15-25% below entry (wider stops for position trades)
Trailing Stop Methods
The key to position trading is riding the trend:
- Weekly swing low: Trail below each new higher low on weekly chart
- Moving average: Exit when price closes below 10 or 20-week EMA
- Percentage: Trail 20-25% below the highest close
- Trendline: Exit when weekly uptrend line breaks
Trailing Stop Example
Entry: $50, Initial stop: $40 (20% below)
Month 3: Stock at $70, trail stop to $56 (20% below high)
Month 6: Stock at $95, trail stop to $76
Month 9: Stock at $120, trail stop to $96
Month 10: Stock drops to $96, stopped out
Result: $46 profit per share (92% gain) on a stock that eventually peaked at $120
Exit Signals
- Weekly close below 40-week moving average
- Weekly trend structure breaks (lower low)
- Monthly chart turns bearish
- Fundamental deterioration (earnings decline)
Position Sizing
Position trading uses wider stops, requiring adjusted sizing:
- Risk 1-3% of portfolio per position
- Account for the wider stop loss distance
- Hold 5-10 positions maximum for diversification
- Never put more than 20% in a single position
Position Trading Portfolio
Diversification
- Spread across different sectors
- Include different market caps (large, mid, small)
- Consider international exposure
Portfolio Management
- Review positions weekly
- Add to winners that continue trending
- Cut losers that hit stops
- Rebalance quarterly if positions become too large
Advantages of Position Trading
- Less time commitment than day or swing trading
- Lower stress and emotional involvement
- Captures major wealth-building moves
- Lower transaction costs
- Tax efficiency (long-term capital gains)
Challenges of Position Trading
- Requires patience during drawdowns
- Can underperform in choppy, sideways markets
- Larger drawdowns compared to short-term trading
- Need discipline to hold through volatility
Position Trading Checklist
- Is the stock in a long-term uptrend (weekly/monthly)?
- Is price above the 40-week moving average?
- Is there a valid entry setup (breakout or pullback)?
- Are fundamentals supportive?
- Where is my stop loss (max 20-25% below entry)?
- What is my trailing stop method?
- Does this position fit within my portfolio allocation?
Common Position Trading Mistakes
- Checking positions too frequently and overreacting to daily moves
- Taking profits too early on big winners
- Not using trailing stops and watching gains evaporate
- Averaging down on losers instead of cutting losses
- Overconcentrating in one position or sector
- Abandoning the strategy during normal pullbacks
- Using stops that are too tight for the timeframe
Track Your Position Trades
Pro Trader Dashboard helps you monitor long-term positions and analyze your portfolio performance over time.
Summary
Position trading captures major market trends by holding positions for weeks to months. Using weekly and monthly charts, position traders identify long-term uptrends and enter on breakouts or pullbacks. The key is using wide stops to avoid being shaken out by normal volatility, and trailing stops to ride trends while protecting profits. Position trading requires patience and discipline but offers the advantage of capturing big moves with less time commitment than short-term trading. It is ideal for those who cannot watch markets constantly but still want to actively manage their portfolios.
Learn more: trend following and day trading vs swing trading.