Position trading is the most long-term trading, with trades lasting from several months to several years!
Position traders disregard short-term market swings in order to identify and benefit from longer-term trends.
This is the most similar to “investing” style of trading. The key distinction is that in markets other than forex, “investing” usually entails holding long holdings.
This type of forex trading is only for the most PATIENT traders and necessitates a solid understanding of the fundamentals.
Because position trading is held for such a lengthy period of time, fundamental themes will be the primary focus of market analysis.
Fundamentals drive long-term currency pair movements, and it is critical that you grasp how economic data influence your countries and their future prospects.
Your stop losses will be very substantial due to the long holding period of your trades.
This means that your losses could be massive, but your winnings could be big as well. You must ensure that you are well financed or you will most likely have your margin called.
Check out our risk management lesson to get an idea of how much money you should have in your trading account.
Position trading also necessitates tough skin because your transactions will almost always go against you at some time.
These will not be minor retracements, however.
You may face large swings, and you must be prepared and have complete faith in your analysis to remain calm during these moments.
Types of Position Trading
While fundamental analysis is considerably more important for position traders, technical analysis is often utilised.
Position traders typically employ both fundamental and technical research to assess future trends.
Position traders employ the following trading methods based on technical analysis:
Trend Trading Using Moving Averages (MA)
The 50-day and 200-day moving average (MA) indicators are important technical indicators for position traders.
This is owing to the fact that these moving averages show substantial long-term patterns.
When the 50-day moving average intersects the 200-day moving average, it indicates the possibility of a new long-term trend.
The “Death Cross” occurs when the 50-day MA falls below the 200-day MA.
The “Golden Cross” occurs when the 50-day moving average crosses over the 200-day moving average.
Longer-term moving averages (MAs) are popular chart indicators for position traders.
Support and Resistance (S&R) Trading
Support and resistance levels might indicate where the price is headed, allowing traders to decide whether to enter or close a position.
A support level is a price level that has not traditionally fallen below. These “historical” levels of support might last for years.
A resistance level is a price level that has traditionally been difficult to break. These “historical” levels of resistance might potentially last for years.
Position traders who expect long-term resistance to hold might close out their positions before unrealized profits begin to fade. They may also enter long positions at historical support levels if they believe the long-term trend will hold and continue upward.
This method necessitates traders analyzing chart patterns. When studying a chart for support and resistance levels, position traders examine three variables.
- 1. The historic price is the most reliable source when identifying support and resistance. During periods of significant up or down in a market, recurring support and resistance levels are easy to spot.
- 2. Previous support and resistance levels can indicate future levels. It is not unusual for a resistance level to become a future support level once it has been broken.
- 3. Technical indicators like moving averages and Fibonacci retracement provide dynamic support and resistance levels that move as the price moves.
Trading breakouts can be important for position traders since they can herald the beginning of a new trend.
Breakout traders employing this approach are aiming to enter a position during the early phases of a trend.
A breakout occurs when the price goes outside of predetermined support or resistance levels (ideally with higher volume).
The principle behind trading breakouts is to open a long position after the price breaks above resistance or a short position when the price breaks below support.
To trade breakouts successfully, you must be comfortable identifying times of support and resistance.
A pullback is a brief dip or modest reversal in the current trend.
When there is a brief market dip in a longer-term trend, this method is adopted.
Pullback traders attempt to profit on market pauses.
The pullback strategy is based on the following:
- For long trades, to buy low and sell high before a market briefly dips, and then to buy again at the new low.
- For short trades, to sell high and buy low before a market briefly rallies, and then to sell again at the new high.
If done correctly, a trader can earn from a long-term trend while also avoiding potential market losses by:
- Selling high and buying the dips (for long trades).
- Buying low and selling the rips (for short trades).
You can utilize retracement indicators, such as the Fibonacci retracement, to help predict future pullbacks.
Your might be a Position Trader if:
- You are an independent thinker. You have to be able to ignore popular opinion and make your own educated guesses as to where the market is going.
- You have a great understanding of fundamentals and have good foresight into how they affect your currency pair in the long run.
- You have thick skin and can weather any retracements you face.
- You have enough capital to withstand several hundred pips if the market goes against you
- You don’t mind waiting for your grand reward. Long-term forex trading can net you several hundred to several thousands of pips. If you get excited about being up 50 pips and already want to exit your trade, consider moving to a shorter-term trading style.
- You are extremely patient and calm.
You might not be a Position Trader if:
- You easily get swayed by popular opinions on the markets.
- You don’t have a good understanding of how fundamentals affect the markets in the long run.
- You aren’t patient. Even if you are somewhat patient, this still might not be the trading style for you. You have to be the ultimate zen master when it comes to being this kind of patient!
- You don’t have enough starting capital.
- You don’t like it when the market goes against you.
- You like seeing your results fast. You may not mind waiting a few days, but several months or even years is just too long for you to wait.