Position Trading Style | Pocket Trader

There was a time not long ago when the only people focused on day trading. However, with time traders realized day trading was becoming exceedingly stressful and not consistently profitable, and they needed a different approach. So, traders started to learn about position trading.

In this article, we will take a closer look at position trading, list types of this trading style, highlight its benefits and drawbacks, and finally, answer the question of who it is suited for.

What is Position Trading?

Position trading is a type of long-term trading that involves holding a position in a currency pair for a prolonged period. It differs from day trading or swing trading, which involve closing positions within the same trading day or a few days, respectively. The position trader seeks to profit from the long-term trends in the market rather than focusing on short-term price movements. This approach is based on the belief that currency prices tend to move in long-term trends that can last for months or even years. Therefore, the position trader aims to capture most of these trends by holding positions for an extended period.

This kind of forex trading requires patience and discipline, as the trader may need to hold a position for several weeks or even months before realizing a profit. It is also essential to have a risk management plan in place to limit potential losses in case the trade goes against the trader's expectations.

Types of Position Trading

There are several types of position trading strategies that traders can use to achieve their investment goals:

1. Trend Following: Traders using this strategy typically use technical analysis tools, such as moving averages or trend lines, to identify trends and make trading decisions.

2. Buy and Hold: This strategy is based on the belief that over the long term, the financial market tends to rise and that by holding onto the financial asset for a long time, investors can capture that growth.

3. Value Investing: This strategy involves identifying undervalued financial assets and holding them for the long term until their value increases. Value investors typically use fundamental analysis to identify companies with solid fundamentals trading at a discount to their intrinsic value.

4. Growth Investing: This strategy involves investing in companies with solid growth potential., which is also based on the belief that companies with high growth rates will generate higher returns over the long term. Growth investors typically look for companies with strong earnings growth, revenue growth, and a high potential for future growth.

5. Momentum Trading: This strategy involves buying securities showing upward solid momentum and holding them until it fades. This strategy is based on the belief that securities that have been rising in price are likely to continue to rise, at least for a period.

Advantages and Disadvantages of Position Trading

While position trading has its advantages, it also has some drawbacks:

Advantages of Position Trading

1. Less Time-Consuming: It is less time-consuming than other trading strategies like day trading. Position traders do not have to monitor their positions continuously, which frees up their time for other activities.

2. Potential for Large Profits: It can generate substantial profits for patient and disciplined traders. By holding on to a financial asset for an extended period, traders can benefit from long-term price movements and earn significant returns.

3. Reduced Transaction Costs: Traders tend to make fewer trades than day traders, resulting in lower transaction costs. This can be an advantage as it reduces the impact of trading costs on overall profitability.

4. Most Stable Returns: It can provide more stable returns as traders hold their positions for a more extended period. This can reduce volatility and provide a more consistent return over time.

Disadvantages of Position Trading

1. Requires Patience and Discipline: Patience and discipline can be challenging for many traders. Holding on to a position for an extended period can be difficult, especially if the market is volatile and prices fluctuate.

2. Higher Risk: It involves relatively higher risk as traders are exposed to market fluctuations over an extended period. This can result in significant losses if the market moves against the trader's position.

3. Market Timing: Timing the market can be challenging, and traders may miss out on potential gains if they hold on to their positions for too long or exit too early.

4. Limited Flexibility: Position trading can be less flexible than other trading strategies. Traders may have to hold on to their positions even if the market conditions change, resulting in missed opportunities.

Is Position trading for you?

Position trading is ideal for those with a longer-term investment horizon who prefer a more relaxed approach, avoiding the noise and volatility of short-term market movements. Instead of daily fluctuations, position traders focus on long-term trends, using technical analysis for entry and exit points. It can be less stressful than day trading, which requires constant monitoring and quick decision-making. It also capitalizes on fundamental factors that influence market movements over an extended period. For instance, a trader may hold a long position in a stock likely to benefit from a major industry trend, such as renewable energy. Profits can potentially be significant as the movement develops over time.

In conclusion, position trading is a long-term strategy that requires patience, discipline, and understanding of market trends and fundamentals. Traders aim to profit from long-term movements rather than short-term fluctuations, which can benefit investors who prefer a hands-off approach. Research and analysis are necessary before entering any position, and continuous monitoring is crucial too.

Are you looking to start trading in the Forex Market? You can Enjoy FREE USD 10,000 Virtual Funds for trading by Signing Up on Pocket Trader. With Pocket Trader, You can invest in multiple markets, including forex, indices, and commodities, learn from experienced traders and share ideas with their social features to build wealth together.