Last updated on July 21, 2021 by Alphaex Capital
Many people think that position trading is a trading strategy.
They are wrong.
It has to do with trading style and is an effective tool for people who want to speculate in the long run.
In this article, you will learn what position trading is and how you can benefit from it.
Check it out:
What is position trading?
Day traders can be seen as the opposite of position traders.
Position trading is more long-term oriented, with most less than 10 trades a year.
Such investors are not worried about short-term price fluctuations or news unless they change their view of long-term investment.
Position traders believe that, over time, prices will rise and fall in cycles as investors respond to new information.
Buying when prices are low and selling when they are high, position traders can make money without worrying about the highs and lows in the short term.
Position traders are there for the long term and wait patiently.
They know how to identify trends on their own, so they don’t need anyone’s help. Your patience often compensates with increased benefits.
Position traders often use technical analysis and fundamental analysis to assess possible market trends.
The position trader is sitting on his hands and pulls out all his highs and lows in the short term.
The only thing that matters to them is when they may or may not reach a long-term pricing goal, which requires patience.
Position traders will initiate trades to capture any current trends within the structure of the forex market; this means that if there is nothing new, waiting until something appears may be worth doing, because it will eventually show a lucrative opportunity and make sense of what is happening ahead.
The strategies mentioned later in this article can be used by position traders to analyze price charts, make predictions about market movements, and see if a specific trade would benefit them or not.
The best position trading strategies:
Support and resistance levels
Support and resistance levels are used to guess whether the price of an asset is rising or falling.
To find these levels, you will need a trading platform with technical analysis tools.
The resistance level is the price at which an asset will be difficult for sellers to raise it higher and buyers are reluctant to buy at this time.
Support levels are just the opposite: it’s when your position has gone wrong, but you eventually retire and start to recover.
Support levels are a good place for position traders to place their losses in order to reduce the risk of significant losses.
This is because if the price of an asset stops just below the support level, it will continue to rise again until it reaches the point where there was resistance before. This area is called the “investment level”.
It is at this point that position traders can buy back and take advantage of a new trend that has just begun to form. They will usually reap quick benefits.
However, this strategy is not infallible because if the price of an asset continues to fall during the investment phase, it could enter another downward trend.
Break trading is something you can do to make money at the beginning of a trend. You need to be able to identify the periods in which market support or resistance is given for this strategy to work.
If you see that an asset has gone out of its reach or trading channel, that means there are more buyers than sellers and it is likely to continue to increase in value. You can then acquire this position with a long-term perspective.
This strategy is slightly different from position trading and requires more technical analysis skills to determine when the price of an asset will continue to rise.
If you can identify it, you can take advantage of the break by buying the trend right now with a larger stop loss, as prices are likely to continue to rise in value.
A negative trading strategy, as its name suggests, allows position traders to buy low and sell high.
When the upward momentum in the price of an asset has recovered after a temporary fall, it is not uncommon for a trade to be made where it is bought at market lows and sold when they are higher than paid.
This is achieved by buying when the market goes down for short periods of time before continuing its upward trends (rather than progressing towards more permanent bearish investments).
A negative trading strategy is based on the time of operations to take advantage of waiting for short-term declines that do not last too long.
Not only must you be able to accurately predict these small downward movements, but you also have enough capital available at times like this; otherwise, it is better to leave things alone until you make big profits again.
Pros and cons of position trading
- You don’t need to persistently monitor your positions. If you are a holder of the long-term trend, therefore, you will not bother in the small intraday moves.
- Fundamental and technical research is behind the trade, so you should have a better market perspective looking ahead.
- If done correctly and the end of the trend is captured, a murder can be committed. But that won’t happen every time.
- You need to have a wider stop loss. Your view of the trend is days and weeks ++, so having a tight stop loss can take you out before the close of the first day. Therefore, you will have one-time losses that are usually 50-200 pips wide.
- You may need to lower leverage to withstand market volatility.
- If you are trading a CFD or margin product, you will have to pay nightly rates to keep margin products overnight. These will add up over time.
- Some traders do not use a stop loss, but use a mental stop loss, which in theory is good, but if something would happen unexpectedly overnight, you could suffer a significant loss of what is needed.
Is position trading for you?
Forex trading for beginners has many viable options, from swing trading to scalping.
All investors and traders have different goals. They have to choose the best trading style for them. There are pros and cons to each style.
The first thing to think about is why you invest.
Do you want to accumulate money for the future? Or do you want to change your life?
If you are someone who wants an active approach to forex trading, there are other trading styles that may be right for you.
However, if you want to identify trends and look for growth over a longer period of time with little interaction.
It requires patience and discipline, which can be difficult for many forex traders.
So if you find this more appealing, you should try position trading.
After reading this article, you should have a good understanding of position trading.
Whether or not it is appropriate depends on your personal preferences and goals.
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