Position Trading: The Definitive Guide

Last Updated on September 19, 2021 by Alphaex Capital

Many people think position trading is a trading strategy.

They are wrong.

It’s to do with the style of trading, and it’s an effective tool for people who want to speculate long term.

In this article, you’ll learn what is position trading & how you will be able to benefit from it.

Check it out:

What is position trading?

Day traders might be seen as the opposite of position traders.

Position trading is more long-term oriented, with most placing less than 10 trades a year.

These types of investors are not concerned about short-term fluctuations in price or news unless it changes their view on the investment for the long run.

Position traders believe that, over time, prices will go up and down in cycles as investors respond to new information.

By buying when prices are low and selling when they’re high, position traders can make money without worrying about the short-term ups and downs.

Position traders are in it for the long haul and patiently wait.

They know how to identify trends on their own, so they don’t need anyone else’s help. Their patience often pays off with increased profits!

Position traders often use technical analysis and fundamental analysis to evaluate potential market trends.

The position trader sits on their hands and rides out all of their short-term ups and downs.

The only thing that matters to them is when they can reach a long term price objective or not, which requires patience.

Position traders will initiate trades in order to capture any present trends within the forex market structure; this means if there are no new developments, then waiting it out until something comes up may be worth doing because eventually an opportunity for profit will show itself as well as make sense with what’s been going on beforehand.

The strategies mentioned later on in this article can be used by position traders to analyse price charts, make predictions about the markets’ movements, and see if a specific trade would benefit them or not.

Position Trading Strategies

Best Position Trading Strategies:

Support and resistance levels

Support and resistance levels are used to guess if an asset’s price is going up or down.

In order to find these levels, you’ll need a trading platform with technical analysis tools.

The resistance level is the price where an asset will become difficult for sellers to push it any higher and buyers are reluctant to purchase at that point.

Support levels are just the opposite: this is when your position has been doing poorly but then finally bounces back and starts to recover.

Support levels are a good place for position traders to put their stop losses in order to cut the risk of a major loss.

This is because if an asset’s price stops just below the support level, then it will continue rising up again until it reaches that point where there was resistance before. This area is called the “reversal level.”

This is when position traders can buy back in and take advantage of a new trend that has just started to form. They will usually make a quick profit.

However, this strategy isn’t foolproof because if an asset’s price continues falling during the reversal phase, then it could enter into another bearish trend.

Breakout Trading

Breakout trading is something you can do to make money in the beginning of a trend. You need to be able to identify periods when the market is being supported or resisted in order for this strategy to work.

If you see that an asset has broken out of its range or trading channel, this means that there are more buyers than sellers and it’s likely going to keep rising in value. You can then buy into this position with a long-term perspective.

This strategy is a bit different than position trading and it requires more technical analysis skills in order to determine when an asset’s price will keep going up.

If you are able to identify this, then you can take advantage of the breakout by buying into the trend at that point with a bigger stop loss since prices are likely going to keep rising in value.

Pullback Trading

A pullback trading strategy, as the name suggests, allows position traders to buy low and sell high.

When an asset’s upward price momentum has recovered after a temporary dip, it is not uncommon for a trade where one buys at market lows and sells when they are higher than what was paid.

This is accomplished by buying when the market drops for brief periods of time before continuing their trends upwards (rather than progressing into more permanent bearish reversals).

A pullback trading strategy relies on timing your trades in order to take advantage while waiting for short-term dips that don’t last too long.

You need to be able not only accurately predict these little downward movements but also have enough capital available during times like this – otherwise it’s better just leaving things alone until there are some big gains made again!

Pros and Cons of Position trading

Pros:

  • You don’t need to persistantly monitor your positions. You’re a long term holder of the trend, therefore, you won’t get jittery around small intraday movements.
  • Both fundamental and technical research is behind the trade, thus you should have a better outlook on the market looking forward.
  • If done correctly, and you catch the bottom of the trend, you could make a killing. This won’t happen every time though.

Cons:

  • You need to have a wider stop loss. Your view of the trend is for days and weeks ++, so having a tight stop loss might take you out before the close of the first day. Therefore, you will have stop losses that are normally 50-200 pips wide.
  • You may need to lower the leverage to endure the volatility of the markets.
  • If you are trading a CFD or margin product, you’ll be having to pay nightly fees for holding margin products over night. These will add up over time.
  • Some traders don’t use a stop loss, instead they use a mental stop loss, which is good in theory but if something would happen unexpectedly over night – you could suffer a large loss than was necessary.

Is Position Trading For You?

Forex trading for beginners has a lot of viable options from swing trading to scalping.

However:

All investors and traders have different goals. They must choose the best trading style for them. There are pros and cons to each style.

The first thing to think about is why you are investing.

Do you want to build up money for the future? Or do you want to trade for a living?

If you are someone who wants an active approach to trading forex, then there are other trading styles that may suit you.

However, if you want to identify trends and seek growth over a longer period of time with little interaction.

Furthermore:

It requires patience and discipline, which can be difficult for many forex traders.

So if this sounds more appealing to you, then you should give position trading a try.

After reading this article, you should have a good understanding of position trading.

Whether or not it’s right for you is up to your personal preference and goals.

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