What are the benefits and disadvantages of this trading style? All explained.
By Guy Avtalyon
The position trading is an approach to trading in which the trader either buys or sells contracts and holds them for an extended period of time. It also refers to the longest term trading. You can have trades that last for several months to several years. This kind of Forex trading requires a good understanding of the fundamentals. Let’s say it isn’t for traders without patience. So, why is that?
What does Position trading require?
Patience. Fundamentals force the long-term trends of currency pairs. Hence, it is very important that every new trader understand how economic details can affect the domestic financial outlook. In this kind of trading, the trader has to hold the trade for a long time. Stop losses will be very large.
That indicates that the trader must have stable capital. Otherwise, the trader will get a margin.
What does taking a position trading mean?
Taking position trading means a position you take when you buy or sell securities. If you buy a stock, future or option, it refers to a Long Position
But if you sell-short a stock, future, or option, it is Short Position. In short, the word position describes your action and view on security/shares/futures, etc.
By taking the position in the stock is something you do to earn money from the stock market.
How to earn money in the stock market?
By purchasing a stock (called taking the position) and then selling that stock (closing the position).
Or by selling the stock (called taking the position) and then buying that stock (closing the position).
However, the duration of your position can fluctuate depending upon your strategy.
It could be for a few seconds, or a few minutes, or a few years, or 20 years. It depends on your personal psychology and goals you want to achieve.
What is the basic analysis of this trading method?
Read the charts or use some fundamental analysis before trading.
When you buy a particular stock always lookout for high volumes.
Of course, don’t buy all the shares at once. Buy it in installments. You have to buy at a lower price. So averaging can helps a lot and don’t forget to put stop loss.
Sometimes market swings beyond our expectations and things may not go well. In that case, you need to exit on time and always make a substantial profit and move on.
You are not married to the stock, so you can always buy it when it corrects.
What is position trading?
Let’s say it again, the position trading, also known as ‘trend trading’, can best be described as a ‘buy and hold’ method.
If you want to become a forex position trader you must be the independent brain. Sometime you must ignore popular views and make your own presumes like, to where the market is going.
You must understand fundamentals and have good vision into how they affect your currency pair in the long run. First of all, actually, you must have enough capital to withstand several hundred pips if the market goes against you.
Long-term Forex trading can net you several hundred to several thousands of pips. If you are too excited being up 50 pips and already want to exit your trade, examine moving to a shorter-term trading style.
You have to be very patient for this trading style.
For position trading, historical points of support and resistance are maybe more important than indicators. The most important is to draw straight horizontal lines and use different time frames. The longer the time frame, the more important level. For this trading style, once again, you must have enough starting capital, you must be patient.
So, what might entice you to try this style?
Firstly, position trading is very convenient for new traders. The speed isn’t as wild as day trading or swing trading. Hence, you have a bit more time to plan your activities and create a trading plan. On a wider level, position trading can also be more attractive in different types of markets.
For example: If you are in a bull market where there are strong emerging trends, it can be a good time to engage in position trading.
You will not see the result fast, it will take time. We are speaking about months and years, not hours or days.