June 17, 2020, | AtoZ Markets - Position trading is the most popular and well-known trading method. It is used mostly by professional traders. Position trading commonly based on technical analysis, markets support and resistance level and price action context. Position trading is the most common for trading stocks, bonds, mutual funds, commodities, indices, futures, etc.
What Is Position Trading?
Position trading is the most common trading method where a trader or an investor holds a position in an asset for an extended period, which lasts for weeks and months. A position trader always looks for long-term charts, rather than short-term price movements. Position trading is a type of trading by which a trader looks for long-term price action as well as the fundamentals of an asset to place a trade.
Furthermore, Position trading depends on only high timeframes that make it easier for traders to find the psychological market levels and weekly and monthly support/resistance. Long-term levels are very important while holding positions. Because the market always reacts on those level and mostly change their direction or trend. Moreover, there is a greater potential for gaining profits as well as an increased innate risk. On the other hand, it requires less maintenance, capitalising on more substantial bias and reduces the noise of the market.
How Does Position Trading Works?
Position trader's definition is, they follow the trend. The main concept is that once a trend began, it is approximate to sustain. Buy and hold long-term investors who known as passive investors, hold their position longer than position traders do. The trading philosophy they are focused on aims to effectively seize the heap of a trend's move, which would fruitful to improve their investment capital.
In addition, as day-trading is to fetch gain from short term market fluctuations and it's the total reverse of day-trading. Albeit, swing trading and position trading both are based on the trend following conception, yet positions are held for a long time-frame in position-trading that exceed the time -frame of swing-trading. To make trading decisions position traders use fundamental analysis, technical analysis o combines both of the analysis. For selecting investments, they confide in general market trends, macro-economic factors historical patterns, also consider that it will acquire the upshot they wished.
Furthermore, the position trader has to ascertain the entry/exit levels and also has to have a quarterback for risk monitor through stop-loss levels to become victorious. It is nothing but to wait for the desired upshot after the trade has started and the safeguards been executed. The pith risk here is having a noxious effect on their trading accounts by the trivial fluctuations that they overrode. They can be victimized by opportunity-costs whereas their capital will be laced up for an expanded session of time, which would be another pullback for them.
Position Trading Approaches
Position trading generally works with both Fundamental and technical analysis.
Fundamental analysis is very important for those who want to hold the position for a longer time frame to achieve the desired outcome. Fundamental analysis in position trading is often connected with asset choosing. It allows the trader to trace winning assets, which may provide massive outcomes.
On the other hand, Technical analysis is also very important to the position trader who wants to hold the stock for an extended period. By technical analysis, a trader identifies the trend and its possibility to run further. Technical analysis also provides support and resistance level like - key level, event level and also the dynamic levels. The technical analysis allows the traders with two options:
- Trade the asset with the upcoming impulsive trend
- Trade the stock which has already begun trending
Besides, the first option may provide higher returns, but it is also riskier and need more exploration-acute. In contrast, the second option may need less exploration-acute, but the trend may lose the momentum to earn excellent gains.
Position Trading Pros
- Catches major moves - You can hold the position when the asset move, sometimes in a massive way and without a leap in and out of trades.
- Full-time attention not required - It can save the valuable time of yours as it is not required full-time attention. You can do a job, go to school or enjoy your free time. But you need to observe the market for a few hours a day. It may fit into your lifestyle.
- Fewer commissions and fees - Whereas you are not buying and selling the stocks consistently, position trading normally doesn't require a high amount of commission and fees in comparison to day trading styles.
- No need high-speed internet - Position traders have a reputation for trading while travelling the world. They don't need a high-speed trading internet connection as day traders require.
Position Trading Cons
- Require large moves - In a consolidating market where assets rarely anticipate big moves, the positions trader often catches major moves in stocks. It's better in the market's bullish trend environments.
- Patience is important - In position trading, you may need to hold it for weeks or months while stock moving up and down each day. A trader needs very strong psychology to handle these situations. Sometimes it may be extremely frustrating when you are looking for a quick profit.
- Tied-up capital - When you hold stocks for weeks to months, your capital will be tied up in those trades. You can't utilize your capital on other trades opportunity. So, you may miss them because you don't have the extra capital to jump in.
- Trade quantity - You can't frequently trade with it like day traders, and swing traders do. So, you may not have the experience of the market as they do. And it may take a prolonged time to become a professional trader.
Position trading is the most preferable for those who want to invest in stocks while doing other kinds of stuff. For professional traders, it might be less valuable because they trade for quick outcomes and quick entries-outs. Though it can give you greater outcomes, you need to wait for a long time to achieve the desired goal. For position trading, you may require good fundamental analysis rather than technical analysis as the stock will perform based on that particular company's financial situation and future expects.
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