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What is position trading?
Position trading is a common trading strategy in which a trader holds a security for a long period of time for months or years. Position traders do not focus on the short-term movement of prices and tend to pinpoint and profit from long-term trends. This is the closest way to investing, with the difference that buy-and-hold investors can only go long the market.
Of all the trading strategies, position trading has the longest holding time. This also gives the trader more profit potential and more inherent risk.
The advantages of position trading include lower position margins, speculation on real market movements, and protection from market "noise.
Position Trading Strategies and Techniques
Position traders tend to use fundamental and technical analysis to assess potential price trends in the market, and here are some of the position trading tips.
50-day moving average trading
The 50-day moving average (MA) indicator is an important technical indicator for position traders. Since 50 is a factor of 100 and 200, its corresponding moving average can illustrate a significant long-term trend. This means that when the 50-day moving average crosses the 100-day and 200-day moving average indicators, it may indicate the beginning of a new long-term trend, which makes it an ideal indicator for position traders.
Support and resistance levels
Support and resistance levels can indicate the direction of asset price movements, thus providing some information for traders to open and close positions.
The support level is the historical low of the asset price. Support levels can be short-term and can be held for many years. Conversely, the resistance level is the all-time high of the asset price. For example, a position trader closes a position at a long-term resistance level and only after reaching this point does the price of the security fall. Similarly, if a long-term trend is expected, they may buy at historical support levels.
This strategy requires the trader to analyze chart patterns. When analyzing charts, position traders consider three factors when judging support and resistance levels. First, the historical price of a security is the most reliable basis for determining support and resistance levels. During the period when the market rises or falls sharply, it is easy to find support and resistance levels that appear multiple times. Second, previous support and resistance levels can indicate future levels. It is not uncommon for a resistance level to become a support level after it has been breached. Finally, technical indicators such as Fibonacci retracements provide dynamic support and resistance levels that move with asset prices.
Trading Breakthrough
Trading breakouts are very useful for position traders because they mark the beginning of the next major change in the market. Traders who employ this technique tend to create positions in the early stages of a trend.
A breakout is a position where the price of an asset exceeds an established support or resistance level and the volume of trading increases. The principle of a trading breakout is that a long position is created when a security breaks through the resistance position and a short position is opened when the security breaks through the support position. Breakout strategies are often the basis for large-scale price movements in traded securities. To be successful in a breakout trade, you need to have the confidence to identify periods of support and resistance.
Callback Policy
In the market, a correction is a brief decline or slight reversal of the trend of asset prices. When there is a brief decline in the long-term trend of the market, traders will use a callback strategy to take advantage of the short-term change in the market.
A pullback strategy operates by buying at a low and selling at a high before the market briefly falls, and then buying at a new low. If executed successfully, traders can not only profit from the long-term trend, but also avoid possible losses by selling high and buying low. Of course, this is easier said than done. Some retracement traders use retracement indicators to judge, such as Fibonacci retracement.
Which financial instruments do position traders usually choose?
Position trading is the closest way to trading an investment. Position traders want to profit from long-term trends, and they are more interested in markets with clear trends than markets that are volatile but always within the price range.
Stock CFDs
Company shares are usually traded by position dealers. As a general rule of thumb, asset classes such as equities are more prone to more stable trends than highly volatile markets such as cryptocurrencies and certain foreign exchange markets. In addition to analyzing relevant information, such as market announcements and broader relevant news, a fundamental analysis of the company's main business models and accounts is also essential. Position traders can analyze the value of the company to make a rough estimate, so as to better find trading opportunities, some traders can also speculate that a company, or even a certain industry will go bankrupt within a year.
Commodity Contracts for Difference
Compared to other markets (e. G. Cryptocurrencies and certain currency pairs), commodities, like stocks, are more prone to long-term trends. This is not to say that commodity markets are not volatile, just that their volatility tends to be easier to restore stability and trade in closer price ranges. Hard commodities need to be purified, so the supply chain is in the hands of mining companies, which means a relatively stable trend. They are more vulnerable to demand shocks, while supply is relatively stable.
Index CFDs
The index consists of a large number of companies, most of which are not correlated. They tend to come from the same geographical area, be it a particular country, trade area or continent. Therefore, indices usually have a clear trend and are favored by position traders. For example, the FTSE 250 is a good indicator of the health of the UK economy, and the index is usually not affected by short-term declines in a particular sector. Trading the index has less interference information and clearer market movements (both up and down), which complements position trading.
Foreign Exchange Contracts for Difference
Position traders do not choose currency pairs as trading objects, and their volatility is one of the reasons. In other words, the long-term direction of the foreign exchange market will obviously be affected by certain political trends. For example, after the UK-EU referendum, the foreign exchange market has been predicted for the next six months to a year.
Cryptocurrency CFDs
Although cryptocurrencies are known for their extreme volatility, they attract some position traders. They use a buy-and-hold strategy to hold some cryptocurrencies that are expected to increase significantly over the long term. Such position traders can indeed take inspiration from those speculating on cryptocurrency bubbles and get out before the crash. The cryptocurrency market is highly volatile and traders who employ a buy-and-hold strategy should trade cautiously and at their own risk.