Managing a Position Trade.

A position trade tracks the intermediate trend of the market. It follows that the trade should continue while the intermediate trend remains in place. But, trade management does not always blindly follow the trend. A number of exit rules may be built in, which are necessary for proper money management.

A position trade that I took for the Nifty was based on these rules:

1. I am expecting a move down to 4000. I will consider exiting once prices come in the 4000 – 4200 zone. this is my profit target.

2. Because I am looking for a large profit, I have to give a fair amount of room to the trade, accepting a number of counter trend rallies while the main trend remains down.

3. If I have clear signals of a rally, I may consider closing my positions, only to restore them after a rally or after a failure of the market to rally. In the first case I will make a small trading profit while in the second case I will have to reenter at a lower price. Since I am prepare to restore my closed position, I consider that I am in the position trade even when I may have actually closed my position partially.

4. My positions consist of mid month Puts.

My notes on these rules: I actually closed most of my positions at the close at 4560 – almost at the low of the swing. These positions were restored when the nifty crossed 4700. The reason I closed my positions was the relentless decline in the market day after day. Finally, 60 minute charts were giving large positive divergences at 3 PM.

A Position Trade

As swing traders, we keep on taking  trades which are in harmony with the short term trend.  These trades last from a few hours to a few days. However, the market is controlled by the larger trend. It is wise to maintain a position that goes with this larger trend. Such a position is called (by me) as a Position Trade. These trades will last for weeks to months, although I may enter and exit a few times while the larger trend is continuing.

As of now, I have a Position trade in the Nifty which is a short position, taken at 5200 and then added to at 5000. The stop loss for this trade is currently at 4800. The trade continues, since the Nifty has not yet closed above 4800.

As time goes by and new patterns form on the end of day Nifty chart, the stop or even the basis of the trade may change.