Position trading is a long-term trading strategy where traders use longer-term charts in combination with other methods to determine price movements over weeks, months, or years. Traders practicing position trading focus on markets with well-defined trends and narrower price ranges over markets with high volatility and wide trading range.
Traders following the Position Trading Strategy are known as position traders whose main focus rests on the long-term performance of assets, which is a striking contrast to day traders. A position trader aims at identifying trends in security prices and earning profits from such trends that are usually long-term.
“Buy and Hold” Strategy
Position Trading has proven to be quite profitable and is distinct from other trading strategies. It operates on the principle of buying and holding stocks based on a predicted trend or expected boom. When the trend peaks and the industry show substantial growth the position traders sell the stocks to gain profits.
Traders involved in Position Trading Strategies generally follow both fundamental and technical analyses, often mixing and matching them. The fundamental strategy is associated with picking winning stocks that might provide high returns and focuses on qualitative factors driving the price of assets.
Technical strategy streamlines on identifying trends in asset prices that bring in profits for the traders, it is majorly price led. The techno-fundamental strategy uses the best of both technical and fundamental strategy using charts to study price behavior and checking on fundamentals for the study of long-term qualitative change.
Positives of Position Trading
- The long-term element makes this strategy less risky.
- The best of both fundamental and technical analysis involved in position trading makes it a full proof strategy.
- This strategy has been effective in capturing the major changes in assets that happen suddenly.
- Position traders are less involved in the process compared to swing or day trading counterparts.
Position Trading May Not Be Always Be Advantageous
- Trending markets are the best environment for position trading while the sideways markets may not be very profitable.
- There are issues of the capital being locked and liquidity risks of the traders in position trading.
- Long-term capital is a major requirement in this strategy which is not true for other strategies.
- Requires niche skill to analyze fundamentals of the assets which is scarce among the technical analysts.
- Mistakes are expensive in position trading as stop losses are wider compared to other strategies.
Bottom Line: Position Trading Strategies
Trading involves risk and hence requires sound knowledge and research before investing. Position trading must be a tested and proven strategy for better profit margins, but it certainly involves observing, understanding, and comprehending market movements.
A patient study of the market movements and patterns makes things comparatively easier to identify and execute position trading strategies gaining better with fewer risks involved.
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only.