Position trading is the longest-term of all trading styles. Trades can last anywhere from several months to several years! Position traders ignore short-term price movements in favor of pinpointing and profiting from longer-term trends.
It is this type of trading that most closely resembles investing. The crucial difference is in markets outside forex, “investing” usually means you hold positions that are long. This kind of trading is reserved for super PATIENT traders and requires a good understanding of the fundamentals. Fundamentals dictate the long-term trends of currency pairs and it is important that you understand how economic data affects your countries and their future outlook.
Since trades are held over a long period, stop-losses tend to be large. This means potential for big losses (and big profits) are a very real prospect. Thus, position traders need to be well-capitalized, so as to avoid a margin call.
Position trading also requires a certain sense of apathy and patience, because it is almost a foregone conclusion that your trades will go against you at some point or another — and they won’t be little retracements. Position traders experience huge swings and must trust their trading strategy and analysis.
Types of Position Trading
While fundamentals are the primary focus for position traders, technical analysis still plays a crucial role in helping to identify longer-term trends.
Below you’ll find a few trading strategies that lean on technical analysis for position trading.
Trend Trading using Moving Averages is one of the most popular strategies for position traders; this strategic approach involves tracking price movements with a moving average. When prices move above or below the moving average, it can signal whether an asset is in an upward or downward trend.
Generally, position traders like the 50-day and 200-day moving averages.
- When the 50-day MA intersects with 200-day MA, this signals the potential of a new long-term trend.
- When the 50-day MA crosses below the 200-day MA, it is referred to as the Death Cross.
- When the 50-day MA crosses above the 200-day MA, it is referred to as the Golden Cross.
Support and Resistance Trading is another popular strategy for position traders. Support and resistance levels are key price points from where prices have a tendency to bounce, making them an important indicator of trend direction. Position traders will often employ this style of trading when they come across a significant support or resistance level on the chart.
Historical support and resistance levels can hold for long periods of time, even years. Analysis of chart patterns is key. When analyzing the chart, there are three factors support and resistance position traders take into account.
- The historic price is the most dependable basis when recognizing support and resistance. During periods of considerable ups or downs in a market, cyclical support and resistance levels are easy to identify.
- Earlier support and resistance levels can reveal future levels. It is common for a resistance level to become a future support level after it has been broken.
- Traditional technical indicators — like moving averages and Fibonacci retracement — provide dynamic support and resistance levels that change as the price changes.
Breakout Trading is another strategy employed by position traders. This involves watching for when price breaks out of an established range and then taking advantage of the momentum that this can create. Position traders may sometimes use indicators to confirm whether a breakout is likely to occur, such as Bollinger Bands or the Average True Range (ATR).
You might be a position trader if:
- You have a good understanding of the fundamentals that dictate the long-term trends of currency pairs.
- You are comfortable with taking on trades that can last up to several years.
- You are patient and take your time when making trading decisions.
- You have thick skin and can weather retracements.
- You have the capital to withstand a large move against you.
- You are able to identify and take advantage of longer-term trends.
- You understand the importance of support and resistance levels.
- You are comfortable trading breakouts or pullbacks from established trends.
You might NOT be a position trader if:
- You are easily persuaded by market experts that the sky is falling.
- You lack understanding of fundamentals of a market.
- You are undercapitalized.
- You lack patience.
- You prefer fast results.
Position trading can be a successful way to trade the market, but it is important to remember that it requires a great deal of patience and knowledge of the fundamentals. If you feel that position trading is the right style for you, make sure to do your due diligence and learn as much as possible about the different strategies available.
Disclaimer: All information provided here is intended solely for study purposes related to trading financial markets and does not serve in any way as a specific investment recommendation, business recommendation, investment opportunity, analysis, or similar general recommendation regarding the trading of investment instruments. The content, in its entirety or parts, is the sole opinion of SurgeTrader and is intended for educational purposes only. The historical results and/or track record does not imply that the same progress is replicable and does not guarantee profits or future profitable trading records or any promises whatsoever. Trading in financial markets is a high-risk activity and it is advised not to risk more than one can afford to lose.