Position trading is a method in which traders follow the trend on D1 and more extended periods to open positions. Working with long-term market movements will reduce the effect of individual traders’ and institutional investors’ price noise and local speculative manipulations. The profitability of position trading methods could be better. However, position traders are not required to watch the chart constantly, and position trading tactics may be utilized in addition to others.
Position trading is a long-term method that requires the trader to hold an asset for weeks or months instead of hours or days. This investing provides an alternative to trading options with a short-term horizon. Although position traders often maintain their positions for extended periods, they might move more quickly. Instead of buy-and-hold investing, position investment allows investors to take short and long positions.
Forex position trading is a method in which traders use long-term timeframes and maintain long-term positions. In addition, position traders abandon transactions before the weekend, holidays, or during periods of reduced liquidity. Position trading is a long-term trading method often linked to targeting investing and swing trading due to their similarities.A position trader is a trend follower who enters trades on local corrections and holds them for as long as feasible. As with every trading method, position trading has its quirks, benefits, and downsides.
What are the advantages of position trading?
When the published quotations on tablets during the early stock market period, positional trading allegedly developed into a full-fledged trading method. Due to the inability of the current communication channels to offer timely data updates, short-term trading was technically impossible. Position trading entails capitalizing on a strong long-term trend while avoiding price noise – short-term market fluctuations. The waiting period might be longer than a year, but this is unusual.
The position trading method recommends spotting the commencement of a trending movement on a period beginning with one day (D1). Typically, a long-term trend starts with an essential element, such as an extensive news article. A position is kept until the subsequent reversal of the global trend.
The times when day traders earn gains are the times when position traders experience uncertainty. If a swing trader or position trader does many deals in a single day, a position trader conducts just a few trades every month. Positional trading is comparable to swing trading, long-term investment, and trending methods. None of these trading platforms have defined limits and stringent market conduct guidelines. Flexibility and a compelling mix of currency trading tools and tactics are the keys to success.
Principal characteristics of position trading
Trades are entered in accordance with the daily, weekly, or monthly trend. Position traders often disregard local corrections since they do not follow the chart throughout the day. However, combining position and swing trading may improve the technique’s effectiveness.
Stop orders must protect the transactions (in investments, for example, stops are not used). Typically, the stop-loss distance is large so that the position is not closed by the local correction. Consequently, one of the most important criteria of position trading risk management is that the amount of your deposit and the number of your trades should enable you to survive rather severe market declines. Using a trailing stop, you may secure the locations.
Frequently, position traders use fundamental analysis. During a crisis, traders might gain from short positions. Alternatively, position traders might use wave theory to identify local bottoms and wager on a worldwide market rebound. Local fundamental events (economic data publishing or news releases) have only a short-term impact on the trend; hence, they are disregarded.
Let’s summarize the distinctions between sorts of traders:
- The trader who executes transactions within minutes or hours
- A position trader buys and holds until the trend peaks before selling.
- Buy-and-hold investor: invests for the long term.
There are no complex restrictions on the duration of the hold. For a single asset, dependent on the swap size and volatility level, it is sufficient to maintain an open position for three to five days (until the weekend). The following is a distinction between position and swing trading: In a long-term trend, swing traders identify corrections and only capture a portion of the global movement. In contrast, position traders maintain their positions throughout the whole price trend. Profiting from the blue chips or the U.S. stock indexes is a classic example of position trading. During times of global economic prosperity, the U.S. stock market indices rise consistently, but during times of crisis, they fall precipitously.
A position trader often makes 1,000 to 2,000 pips on a trend over two to three months. Considering swap fees and risks (the need to pay for lost transactions) and the possibility that it can only sometimes identify a strong trend, the average daily profitability is lower. However, quick money only exists in some places. Let’s revisit the prior illustration. On the bull trend of U.S. stock indexes in 2019, one might have made more than 25% annually. One may have earned a comparable amount of money on their decrease in early 2020. Is it large or small? You are free to decide.
In addition to swaps, a position trader must also closely adhere to the risk management requirements, which are as follows:
- The total position volume can be at most five percent of the initial investment.
- The overall risk for all trades should be at most 15 percent of the initial investment.
- The suggested stop loss distance is 100-200 pips, which equates to one three days of typical volatility. A shorter stop loss distance might increase the frequency with which positions are closed by a stop loss.
A stop loss of 15 to 20 pips for day trading is sufficient. If the minimum transaction volume is 0.01 lots and the pip price of */USD pairings is 0.1 USD, the risk should be $10-$20 instead of $1.5-$2.0. Consequently, the minimum deposit amount rises. Some sources suggest a maximum leverage ratio of 1:10 or 1:20. Permit me to remind you that, when appropriately utilized, leverage does not raise risks but rather helps you to boost transaction volume. In turn, the transaction’s magnitude impacts the pip’s value. It does not matter if $1,000 is leveraged at a ratio of 1:1 or $10,000 is leveraged at a ratio of 1:1000.
The transaction volume influences the pip value, and it must be such to comply with the risk management standards. Here, leverage is essential.
Example. I add $135 to my initial investment to create a EURUSD position at the exchange rate of 1.0900. The minimum lot size is 0.01, and each pip is worth $ 0.10. With a stop-loss of 200 pips, I risk losing 200 * 0.1 = $20, or 14.8% of my account balance. The criteria for the absolute risk of all open positions are satisfied. To initiate a 0.01-lot stake, I need $1090. In other words, even with a leverage ratio of 1:10 (135 x 10 = 1350), they cannot reach the 5% criterion. I use a 1:200 leverage. The broker freezes the client’s money in 1090/200 dollars or 4.03% of the initial deposit. The standard has been met. Have no fear of leverage! Leverage is a position trader’s primary tool when utilizing lengthy stop-loss orders.
Technical Analysis for Position Trading
Stock and commodities market assets are the most advantageous assets for long-term position trading on weekly and monthly timeframes. Additionally, currency pairings may move in a long-term trend, although at shorter daily intervals. Currency exchange rates are the weighing scales for national economies. And depending on their economic growth, the scales tip in one way or another, generating a short-term trend and a consolidation range over the long run.
In this context, the phrase “short-term” is relative since we are discussing extended periods. In other words, a weekly trend on a 2-year chart might be considered short-term.
Tools for technical analysis in position trading
Moving averages. The traditional signal for validating the trend. On daily charts, for instance, two EMAs might be used. Trending candlestick formations Both reversal patterns and psychologically-based trend patterns perform well in position trading. Long-term trends are dictated by enormous capitals that do not seek to benefit from speculations and prefer round levels. If three consecutive candlesticks mark the first three weeks of the month in the same direction, the fourth and final candlestick should close similarly.
Levels. The guidelines for designing levels for many periods are the subject of a different article. Large investors influence levels in speculative short-term trading, and price noise disrupts the regularities. Price channels and levels are independent strategic instruments in positional trading. Set a specific duration for each pair and interval. I like using M.A.s with short breaks of 15 to 20 on daily timeframes. Although oscillators are seldom utilized in position trading, they may use them to indicate the beginning of a trend.
Since early 2019, oil prices have fluctuated within a relatively limited range. Oil barely touched $74 and, after a brief sluggish decline to $58, recovered to the $60-$70 area. As I have previously indicated, a strong fundamental element is the best starting point for a position trader. The oil market has received sufficient basic information in the past fifteen years. I am concentrating on the first months of 2020.
In January, the price surpassed the heavy resistance level it had been approaching since 2019. For a position trader whose trading is predicated on solid levels, it hints at an imminent trend reversal unless other fundamental elements support further rise.
The following occurrences took place in January 2020:
- In Wuhan, China, there are significant wildfires and the first symptoms of a coronavirus outbreak. The OPEC produced a study predicting a fall of 200,000 barrels per day in world oil consumption (down to 1 million).
- The United States and Iran/Iraq engaged in a geopolitical confrontation, followed by an assault on military columns and the breakdown of nuclear accords. The United States and China have yet to make much headway in settling their protracted trade disagreements.
- The price increase is unlikely to continue since a sell signal came during the price reversal and the resistance level’s reverse breakout (green dot). The goal level is the degree of resistance (blue dot).
After the price approaches the support level in late December, the issue of whether the decline will continue or the price will turn upwards arises again. I consider essential elements: As the fear persists, the illness becomes a pandemic and spreads globally.
Disruption of transport and commercial ties, decrease in production, and lockdowns (reduction in consumption) led to an oil supply glut on the world market, which would not sustain a price increase. There is no cause to terminate employment. Next, the news that the OPEC accord failed further decreased the price. After the oil price surpasses $30, I have many options for exiting the trade:
- Low-priced oil is unprofitable for oil-producing nations. Thus sooner or later, it will be forced to revert to the OPEC accords.
- The last time the price was this low was in 2016, and waiting for the oil to reach $20 is scarcely worthwhile.
- The epidemic will soon diminish, and it is best to quit the trade in June-July when the globe returns to normalcy, and the reverse trend begins.
- You can now see how a basic position trading technique based on solid levels and fundamental research might provide more than 100 percent three-month profit.
You may measure the risks of a positional trader using fundamental research against XAU, which is generally regarded as a haven. In principle, the March 2020 crisis should have resulted in an influx of capital from the stock market and oil into gold and gold assets. As a result of the U.S.-China trade war, the price of gold will reach its pinnacle in early 2020. In March, however, with the decline in oil prices and the failure of the OPEC pact, gold followed the decline of other assets, thereby contradicting the investment idea.
Even if the gold price rebounded afterward, many long positions were canceled by stop losses during the panic. This example demonstrates that trading based on a fundamental understanding of the long-term trend is only sometimes correct; consequently, you must place protection orders. In the spring of 2020, uranium prices reached four-year highs due to the crisis. Analysts indicated that several of the industry’s top companies had reduced mining and output due to consistent demand.
Position trading may be advantageous in numerous circumstances:
- If you wish to benefit from fundamental global variables and are willing to maintain the trade open for many days/weeks to several months.
- If you have a large enough deposit to endure significant drawdowns and cover swaps.
- If you use intraday and short-term trading tactics, position trading is a different method for diversifying your risk.
MUST READ AND SHARE!
If you like this article please share and love my page DIARYNIGRACIA PAGE Questions, suggestions send me at diarynigracia @ gmail (dot) com
You may also follow my Instagram account featuring microliterature #microlit. For more of my artworks, visit DIARYNIGRACIA INSTAGRAM