The Trench Warfare: Position Trading and Its Secrets

The Trench Warfare: Position Trading and Its Secrets

You can often encounter the references to position trading in multiple articles on the topic of brokering and exchanges. The text may discuss day trading or fundamental analysis, but the reference will be there: position trading is something similar or dissimilar to the given subject. So what is it exactly and why is it mentioned so often?

Position trading is the epitome of investment and trading as such. It is buying instruments and holding them for a long time until their value grows sufficiently. For different instruments, the ‘long time’ can mean a few weeks or a few months (or years). The key here is entering the market at the right time and just letting the position be until there is a good time to exit with profit. Due to such slowness and disengagement from the trading process, position trading can be viewed more like investment, a portion of a diversified investment portfolio.

To get the most of this seemingly relaxed approach, one has to be skilled in both technical and fundamental analysis.

Why does analysis matter?

Because that’s the right way to determine the appropriate moment of entering the market as well as of its exiting. For such volatile instruments as currency, this degree of precision may seem extra, since the prices fluctuate all day long, and there are many opportunities to buy and sell. However, position trading is not day trading. Position trading is about long-term goals, and picking the right currency for such a long time takes more than just risk propensity.

Technical analysis works here like in day trading – you look at the support and resistance levels and moving averages but on a few months’ scale. You find the trend, decide what step to take and when, and then take it.

Fundamental analysis is a way to predict any black swan that may appear and tamper with your plans. Major oil price fluctuations and industrial scandals, Big Tech flops, or military conflicts broiling out of nothing – all these events can impact the prices and trends overnight. This is why financial newspapers and reputable media outlets are now your best friends to start and end your day with.

Specific tools of position trading

The tools we will discuss are aimed mainly at minimizing potential losses if the trend reverses too unexpectedly.

Breakout trading

When the price breaks through support or resistance level, there are chances that you as a trader will not react fast enough to cut your losses. The best strategy in position trading is to set a loose stop-loss level and let the system help you out automatically. A tight stop-loss is too radical a tool since it will close the position at the first signs of trouble (even if it is a false alarm).

If you plan to make money during such breakouts, watch carefully the price fluctuation you are trying to harness. Otherwise, you may lose instead of earning.

Pullback trade

Even in the quietest and steady markets, there are temporary trend reversals that cannot change the bigger trend but provide an opportunity to earn. For example, the price drops, not enough to break the support but enough to provide a chance to gain profit. Here, you buy the instrument low and sell it high, when the price bounces back. But, there is one big condition: have your technical analysis straight and handy, as well as a fundamental one, so that you did not miss the major trend reversal. And, of course, remember the mantra: ‘never catch a falling knife.’

This is basically it. Position trading is slower and less nerves-consuming than day trading, so sit back and relax. If done right, the analysis, and your sixth sense will lead you to significant profits. Good luck!