Position trading is one of the longest-term trading strategies for traders. Position traders usually take the buy-and-hold approach based on long-term charts and/or macroeconomic factors. These traders can trade in almost any market, like stocks, forex, futures, and ETFs.
Explaining Position Trading
When you do position trading, you are taking a position in an asset and you expect to participate in a major trend.
Position traders do not really care about minor price fluctuations or pullbacks. What they focus on is catching the bulk of the trend, which can continue going on for months—or even years!
Why is it so popular?
One of the main reasons this strategy is popular is that you don’t have to spend much time in doing other stuff than waiting for your analysis to materialize.
You do the initial research, and after that’s done, you just do how you want to trade the asset. You can monitor your position some time. However, since short-term price fluctuations aren’t a concern, you really have little left to do but wait.
In this sense, you can think of position trading as the exact opposite of day trading. Day trading requires traders to spend hours each day to trade.
Spotting a Good Position Trade
You can adopt different approaches to position trading. Maybe you can favor assets that have strong trending promise though they haven’t started trending yet.
Or you can buy an asset that has already started trending, which means less research for you. May position traders prefers this one.
If it’s not obvious yet, position trading is mainly about finding a good trend. And because we’re looking for assets that are trending, we want then to avoid assets that trade within ranges. You will only allow choosing those assets if the ranges span many years.
But when trying to spot an upcoming trend, the use of indicators is very useful. You can try and monitor stocks that go above their 200-day moving average from below if you aim to place a buy position.
Support and Resistance
You can also use support and resistance levels, which tell you where an asset’s price movement is going toward. You can then use this information to decide whether you want to open or close a position on particular assets.
The support level is the level at which the price appears unable to break below. There are instances when these support levels hold for long years.
Meanwhile, resistance levels are the price at which the asset cannot break above.
Position trading on support and resistance levels requires chart pattern analysis. There are actually a lot of things that support and resistance levels can tell you.
Trading breakouts are useful for position traders who want to find the next move in the market. In other words, traders using this technique try to open positions at the beginning of a trend.
A breakout level is where a price of an asset moves outside of a defined support or resistance levels with higher volume.
The overall idea of trading breakouts is to go long on the asset when price breaks above a resistance line and go short when its breaks below a support line.