November 28, 2021

Position Trading Strategies

Forex traders use a variety of methods and instruments in the course of their trading operations. The task of selecting the most secure, most accurate, and finest choice from among all of the available alternatives on the market may be difficult, particularly for beginners.

A trader’s tastes often influence their choice of trading strategy, but circumstances may also affect their decision to favor one trading method over another in certain instances. Position trading is one of the trading techniques preferred by long-term traders since it involves fewer risks.

What Is Position Trading?

Trading positions is a common long-term trading technique that enables individual traders to maintain ownership of a position for a prolonged time. Traders may hold positions for a short length of time or many months or even years. Because of the time it takes to maintain positions, the potential for profit in position trading is much greater than in many other trading techniques, such as day trading.

Position traders, also known as trend followers, prefer to trade using long-term trends and accurate fundamental research methods rather than short-term price fluctuations. It is only possible to maintain short-term price movements when market changes have a detrimental impact on the long-term outlook of the positions held by the traders.

Position traders make their decisions based on research that includes both technical and fundamental analysis, among other things. Although they examine other variables such as market trends and historical patterns, they do so with caution when reaching their findings. Identifying the most advantageous entry and exit points and setting a stop-loss order to maximize earnings is the skill of a successful position trader.

Strategies for Position Trading

As opposed to other trading techniques, position trading is the most similar to traditional investment in terms of outcomes, at least in the short term. As long-term price movements are of more importance to them than short-term price fluctuations, position traders prefer markets with clearly defined trends and tight price levels to markets with high volatility and wide trading ranges.

Before starting a trade or making an investment choice, a competent position trader does fundamental and technical analysis to determine possible market trends and risks. The tactics listed below are the most popular among position traders.

1.   Breakouts

Attempting to take a position during the early stages of a trend is what breakout trading is all about. It is a valuable technique because it provides position traders with critical information about the beginning of the next significant market movement, which is beneficial. Trading strategies such as this one are popular with traders who want to initiate a trade at the beginning of a trend.

2.   Support and Resistance Levels

Many forex traders use support and resistance levels as part of their trading strategy. The main goal of the approach is to predict the direction of the price movement in the market. If the price of a currency crosses a long-term resistance level, traders use it to decide when to exit a position.

The idea is that the price will fall if the currency crosses the resistance level. Position traders buy near historical support levels when they believe a long-term rising trend is about to begin.

3.   Fibonacci Retracements

Trading position traders rely on Fibonacci retracements as one of their most favored technical indicators when deciding whether to join or leave an investment position at a particular moment in time.

4.   Pullback

During an asset’s primary rising trend, a pullback is a temporary dip or short reversal in its price. The use of pullback trading enables position traders to benefit from drops or pauses in the price’s upward trend by seizing the opportunity presented by these events.

Once the asset recovers from its recent decline and resumes its upward trajectory, the trader can buy at a low price and sell at a high one to maximize profit margins.

Position Trading Advantages and Disadvantages

Pros

  • Traders have the opportunity to earn significant gains because of the long-term strategy
  • Because there is no need to evaluate positions daily, it is less stressful
  • Position trading requires just a small amount of time to assess the anticipated price movement, enabling traders to spend their remaining time on other activities

Cons

  • Long-term holdings require a substantial sum of money since transactions may take months
  • Solid price movements raise the danger of a complete capital loss
  • Exchange fees may rapidly mount up when holding holdings for an extended period

Wrapping up

Traders are always searching for the finest and safest trading techniques they can afford to take the considerable risk of losing money fast because of the usage of leverage on their accounts. However, no matter whatever trading technique or indicator you use for your trading activity, it is almost difficult to remove risk from the equation.