FXC – Forex Broker

New to trading?

Develop your skill with with our free trading resources.

Position Trading

If you wish to be a long-term trader, this strategy will be suitable for you. The position trading requires fundamental analysis and observation of macroeconomic trends and relevant news. One of the patterns for this strategy is called “Head and Shoulders” which is used to ascertain whether prices are going to move up or down in the future. Position traders pay more attention to long-term price movements by pinpointing and gaining from longer-term trends. This type of trading has a little similarity with investing since positions are held for a long. It is mostly suitable for patient forex traders with a good understanding of the fundamentals.

What is Position Trading?

This is long-term trading in which trades are held for several weeks or months, in anticipation of a big price move. Unlike day trading which lasts within a day, a position trader aims to capture a long-term price trend. 

In position trading, a trader attempts to set a huge profit target and at the same time, they set a big stop loss so as not to prematurely get knocked out of the position. Position traders do not trade actively with most of them placing fewer than 10 trades in a year, and hence might be seen as the opposite of day traders. It is similar to the buy-and-hold strategy since most position traders don’t trade actively. However, when practiced by advanced traders, position trading can be a form of active trading. 

In position trading, longer-term charts between daily to monthly are utilized together with other methods to determine the market trend. Depending on the trend the trade can last for several days to several weeks and months

As you see in the chart, the places where the price stays higher for a long time are the head and shoulders points. Finding these areas and drawing a line through them can tell you where the price is going. Short-term price fluctuations are not considered here. 

This strategy is good for long-term traders with a very favorable risk-reward ratio. But consider this pattern as a rare trading opportunity and requires more thorough research over a longer period. Sometimes, global economic events can impact your strategy also.

Position Trading vs Buy-and-Hold vs Swing Trading vs Day Trading

A slight difference can be seen between position traders and buy-and-hold traders, who are regarded as passive investors and hold assets even longer than the position traders. Buy-and-Hold traders are investors who build a portfolio of assets for long-term goals such as retirement regardless of fluctuations in the market. The position trader, on the other hand, spots a trend, then make a decision based on the trade and waits for a big price move before closing the trade.

Day trading seeks to take advantage of short-term market fluctuations within a single day. swing traders are In between day trading and position trading as it involves capturing short- to medium-term gains in any financial instrument over a few days to several weeks by analyzing price patterns and trends.

Tactics for position traders

To be successful in position trading, you have to identify the right prices to enter and leave the trade and also know how to manage your risk, usually by putting in place a stop-loss order. In position trading, you must understand how to utilize technical analysis, charts, and fundamental indicators to make trading decisions. General market trends, macroeconomic factors, and historical price patterns are also taken into consideration before entering a position trade.

Types of position trading

Position traders use both technical and fundamental analysis to evaluate potential price movements. Here are some trading strategies utilizing technical analysis that position traders use:

1. Trend Trading using Moving Averages (MA): Most significant technical indicators for position trading are the 50-day moving average (MA) and 200-day moving average (MA) indicators because these moving averages show significant long-term trends. 

When the 50-day moving average intersects with the 200-day moving average, this signals the potential of a new long-term trend. When the 50-day moving average crosses below the 200-day moving average, it is called the “Death Cross“. Also, When the 50-day moving average crosses above the 200-day moving average, it is known as the “Golden Cross“. These longer-term moving averages are the most popularly used chart indicators for position trading.

2. Support and Resistance (S&R) Trading: Support and resistance levels aid in signaling where the price is going thereby helping the position trader know whether to open or close a position. Support is a price level where a falling price or downtrend stops due to increased demand for an asset while resistance is a price level where an uptrend or rising price reverses and begins to fall. They are historical or past levels that can hold for years. 

If a position trader expects a long-term trend to hold and continue in that direction, they may also enter long positions at historical support levels.

Support and Resistance trading requires that traders analyze chart patterns. In position trading, there are three factors to put into consideration when analyzing the chart to identify support and resistance levels.,

i. The most reliable source is the historic price and during a significant up or down price movement, recurring support and resistance levels are easily identified.

ii. Previous resistance and support levels can indicate future levels. Once a resistance level breaks, it is not unusual for it to become a future support level.

iii. Some technical indicators such as Fibonacci retracement and moving averages provide dynamic resistance and support levels that move as the market moves.

3. Breakout Trading: breakouts are often helpful in position trading as they can signal the start of a new trend. Position traders use this technique to open a position in the early stage of a new trend. To trade breakouts successfully, a trader needs to fully understand how to identify periods of support and resistance.

4. Pullback Trading: a pullback or retracement is a short dip or slight reversal in the prevailing trend. Hence, this technique is used when there is a short-term market dip in a longer-term trend. Pullback position traders aim to take advantage of these pauses in the market. They typically buy low and sell high before a market goes dip for a short time dips, and then buy again at the new low.

For short trades, they sell at a high price and buy low before a market briefly rallies, then try to sell again at the new high. If traded successfully, a forex position trader will not only profit from a long-term trend but also avoid possible market losses by selling high and buying the dips (in an uptrend) and buying low and selling the rips (in a downtrend). retracement indicators such as the Fibonacci retracement can be used to help identify potential pullbacks.

Advantages of position trading

● A major advantage of this strategy is that it doesn’t take a lot of time. Once a trade has been executed, the best thing to do is to wait for the desired outcome. It doesn’t require monitoring daily.

● It is a long-term strategy that can lead to big profits.

● There is more time to spend on other professional activities and other transactions since position trading only takes time when analyzing the prospective stock.

Disadvantages of position trading

● The major risk in position trading is that minor fluctuations that a position trader chooses to ignore can surprisingly turn into trend reversals.
● A lot of money or deposit is required to keep positions open as trades can last for several months or years meaning that the capital is locked. Significant price fluctuations are therefore more likely to result in a total loss of the investment
● opportunity costs are bound to happen when money is locked for a prolonged period of time,
● swap fees can accumulate to a massive amount when positions stay open for a long period,
● position trading is generally less risky than day trading or swing trading, but if a slight mistake is made, it will likely be critical. For instance, if a position trader goes against the trend, they will not only lose their deposit, but also the time they invested. 

Start position trading with FXC

Test your position trading skills on our next-generation trading platform.

If you have mastered your strategy and are ready to start real trading