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All about Position Trading

by Elena Martin   ·  July 12, 2022   ·  

All about Position Trading

by Elena Martin   ·  July 12, 2022   ·  
Position Trading Definition

Position trading has the longest holding periods among all trading methods. As a result, while the danger is more significant, so is the profit potential. History is replete with well-known successful traders who used position trading techniques to achieve financial success.

For instance, Joe Ross discussed the most extended example of position trading in history in one of his most recent newsletters, which lasted over ten years (from 1991 to 2000). By establishing a trailing stop that was only activated when the investor thought that a substantial profit had been earned, he created a long-term position in the S&P 500, which he maintained for a considerable time. He ultimately closed the trade with a profit of $16 million.

In addition to being a superb investor and having a wide following of followers, including Warren Buffet, Philip A. Fisher was another well-known position trader. Fisher focused on solid firms with highly positive statistics and produced beautiful bets. Fisher purchased Motorola stock in 1955 and remained a shareholder until his passing at 96.

Characteristics of position traders

A trader who keeps investments for a long time is referred to as a position trader. Positions might be kept on average for months or even years, as was previously noted. Position traders, who are by definition trend follows, are less concerned with short-term changes unless they influence the long-term outlook of their position. Most position traders often do not engage in active trading, and long-term buy-and-hold investors retain their holdings for more extended periods than they do.

When making judgments, position traders often combine technical analysis with fundamental research, but they also consider other aspects like market trends and historical patterns. Position traders who can effectively choose the best entry and exit locations and know when to set a stop-loss order are considered good traders.

Strategies for Position Trading 

The trading approach that most closely resembles conventional investing is position trading. Position traders make money from long-term price changes; thus, they are more interested in markets with clear trends and constrained price ranges than in markets with high volatility and expansive trading ranges.

Positional Trading in Shares

A lot of position traders deal in corporate stock. Less volatile markets like cryptocurrencies and specific currency markets tend to follow more steady patterns than asset classes like equities. Position traders may assess a firm’s genuine worth and, as a result, choose the most pleasing possibilities for them to trade from a robust platform provided by fundamental research of the underlying company, regardless of specific occurrences like market announcements or pertinent news. They might bargain based on where they believe certain businesses or industrial sectors will be in a year.

Positional trading in commodities

Similar to stocks, commodities have a stronger relationship with long-term trends than other markets like cryptocurrencies and currency pairings. This does not imply that commodities are not volatile, just as raw materials may be, but commodities tend to stabilize more quickly than other markets.

Positional trading on indexes
Large businesses are grouped in stock indexes based on factors like their shared location within a region, nation, or continent or their affiliation with a particular retail chain. In turn, position traders choose indices since they have more consistent movements.
position trading
Forex Position Trading

Due to their constant volatility, position traders often prefer currency pairings less. Short-term traders like day traders and forex scalpers are enormous fans of forex trading.
Short-term traders like day traders and forex scalpers are enormous fans of forex trading.

Breakouts in Trading

Position traders may benefit from trading breakouts in any financial market since they can provide helpful information about the start of the following substantial movement on the market. With this strategy, traders hope to enter a trade at the start of a trend.

Trading indicators for Positional Trading

Position traders often assess prospective price patterns in the market using both technical and fundamental research. Here are a few well-known technical indicators that may be used to place trades on any of the aforementioned financial markets.

Moving average over the last 50 days

The 50-day simple moving average indicator in position trading is a crucial technical tool. Because 50 is a multiple of 100 and 200, its associated moving averages are reasonably accurate predictors of critical long-term trends.

Resistance and support

Support and resistance levels suggest to position traders whether it is preferable to start or exit a position on a specific asset by showing the direction in which the asset price is moving. Both historical support levels that last for years and short-term support levels might exist. On the other side, a security’s resistance level is the price cap it has historically been unable to cross. To determine when to terminate a position, position traders would, for instance, employ long-term resistance based on the belief that the security will decline if it reaches this level. Similarly, position traders may purchase near historical support levels if they anticipate the start of a long-term rising trend.

Comparing Swing trading vs. Position Trading

Despite having a similar foundation in trend following, position trading and swing trading have different investment time horizons. Swing traders often keep their positions for a few days or weeks, while position traders typically hold their holdings for months or even years.

Comparing Position Trading with Day Trading

Position trading may be the opposite of day trading, which mainly capitalizes on transient market movements. Day traders seldom keep positions overnight and instead try to acquire and sell various assets to close them before the conclusion of the trading day.

Benefits of Position Trading
  • The long-term approach may result in significant advantages.
  • Because positions don’t need to be tracked daily, the trader has less stress than specific short-term techniques.
  • Position trading requires time while analyze the potential stock, so there is more time to invest in other transactions or professional duties.
Drawbacks of Position Trading
  • As transactions might persist for many months, locking in the money, a large amount of cash is required to keep positions open for an extended time.
  • Large deposits are required since it is impossible to trade positions with little money. Intense price swings consequently increase the likelihood that the invested funds will be lost entirely.
  • Swap costs may add up to a significant sum if the position is held for a long time.
  • Position trading has a far lower level of risk than daily or swing trading, but a mistake might be lethal. A trader who trades against the trend risks losing their initial investment and the time they spend. Discover more about controlling trading risks.
Commence Position Trading with CMC Markets.

Our prestigious trading platform, Next Generation, puts your position trading talents to the test. You may test out our platform risk-free by opening a demo account and practicing with £10,000 in fictitious money first. Otherwise, establish a real account, deposit money, and begin trading when ready.

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