Position trading is a form of trading that takes place over an extended period, ranging from weeks, months, to years to ride on the waves of significant market trends rather than short-term price changes.
Position trading is a style that seeks to identify an ongoing trend and benefit from the majority of that movement. What is position trading if not a long-term trend-following approach focused on bigger market moves? Position traders ignore short-term volatility and focus on longer-term price action.
They wait for a trend to reach its peak before closing their trade. Whether this happens after weeks, months, or years depends on the trend in question. Normally, the style only involves opening a few positions each quarter. This long-horizon approach is often associated with core position trading.
Holding positions open longer opens traders up to more risk of adverse movements, but also the potential for larger gains.
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A position trader buys investments expecting long-term value growth, often holding these assets for an extended period. Unlike day traders who act on short-term market movements, position traders focus on trends likely to continue over time. This strategy results in fewer trades, often fewer than 10 annually. Many traders studying what is position trading begin here.
Position traders are, by definition, trend followers. Their core belief is that once a trend starts, it is likely to continue for some time.
A distinction can be made between position traders and buy-and-hold investors, who are classified as passive investors and hold their positions for even longer periods than do position traders. The buy-and-hold investor is building a portfolio of assets for a long-term goal, such as retirement. The position trader has spotted a trend, made a buy based on that trend, and is waiting for it to peak in order to sell.
This trading philosophy seeks to exploit the bulk of a trend’s upward move. As such, it is the polar opposite of day trading, which seeks to take advantage of short-term market fluctuations. In between these two are the swing traders, which brings up the debate of position trading vs swing trading.
Day trading is widely considered to be the opposite style of position trading. While position traders open a position for the long term, day traders will only ever hold a position open for a single session.
Position traders tend to only have a few trades open at any time, while day traders will have multiple smaller trades running.
No, position trading is not the same as investing, although it shares some of the same characteristics.
The main difference is that position traders don’t just buy and hold. They can also go short, believing there will be a prolonged downturn in a market price. This is where short position trading becomes relevant. This is why most position traders tend to use derivatives, such as CFD trading, to give them this flexibility.
But there’s nothing to say a position trader can’t utilise investment vehicles as part of their strategy too.
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Let’s say an OPEC meeting has just happened in which the organisation announced its intention to cut oil output over the coming months. In theory, the oil price would rise as the decline in supply would create an imbalance against global demand.
A position trader would take a long position on oil futures or even oil company stocks that might see increased profits as the commodity increases in value over the long term. They’d exit the trade when news breaks that changes the outlook.
This contrasts with a day trader, who would aim to trade the immediate reaction following the meeting and only hold the trade for a few hours until the market settles.
To be a successful position trader, you need to:
Your trading plan should govern how and when you’ll trade. It’s a set of rules and goals that will help you be more rational in your approach and avoid trading based on emotions. In the plan, you should outline how many trades you want to place over a given period, your entry and exit rules, and how much time you’ll spend monitoring markets.
As a position trader, you’ll be looking at longer-term outlooks for each market, which will primarily be driven by fundamental factors – such as company earnings, macroeconomic data releases, and breaking news. This is where fundamental analysis and position trading evolution of a trader becomes essential. Keeping up to date on the latest analysis is vital to understanding the bigger picture for your chosen instrument.
Technical analysis is the use of indicators and historical price data to find trends and patterns. Although position trading is a longer-term style, it still requires an understanding of technical indicators and price action to find the best entry and exit points for each trade. Use the best trading platform if you need to.
Whichever style of trading you implement – whether that’s position, day, swing or scalping – it’s important to manage your risk of loss. This is especially the case if you’re trading using leveraged instruments, such as CFDs.
The best position trading strategy approaches include:
Let’s look at each in more detail.
Position traders are trend followers. Every position trader will subscribe to the belief that once a trend starts, it is likely to continue until market sentiment changes. So, pretty much every position trading strategy is at its core a trend trading strategy.
In trend trading, you’re looking to find an entry point as early in a trend as possible and take an exit after a certain level of profit has been achieved. Most of these strategies are based on fundamental factors, but indicators can help identify the start and end of a given trend through momentum, volume, and price action.
Common trend trading indicators are moving averages and the relative strength index.
Breakout trading is another common position trading strategy for positional traders. It involves identifying an area of support or resistance in a market and assessing whether there is enough momentum behind the current trend to push through the level.
Once a support or resistance is broken, it’s likely the trend will continue in the same direction for some time before reversing.
The most common indicators and tools are those that can help identify support and resistance levels, which are typically trend line tools or momentum and volume indicators. Popular examples include Fibonacci retracements, the Ichimoku cloud and the MACD.
A breakout position trader might use stop-entry orders to automate this strategy. Say a known area of resistance for Company ABC was at £100. A trader could place an order to enter the market at £101 so that if the £100 is broken, their position would be executed as early on in the move as possible.
A pullback – or retracement – is the term for the smaller market movements that move in the opposite direction from a wider trend.
Usually, when a pullback occurs, it’s seen as a period of ‘rest’ for the market before the trend continues again. This is a common component of core position trading setups.
The most common way of identifying pullbacks – and ensuring they’re not full-blown reversals – is using Fibonacci retracements.
In this example, we see that EUR/GBP is in a bearish run. Although the price starts to rebound, it hits a Fibonacci level and continues to fall again – indicating the temporary bullish bounce was just a retracement, not a reversal. Had the market moved through the Fibonacci level, it could’ve indicated a stronger price action was underway.
Most position trading traders will focus on shares, indices or commodities, which follow longer-term trends.
Yes, position trading is very popular among share traders because it’s similar to investing.
The stock market tends to follow a trend for an extended period. Although there are periods of volatility following events such as news announcements and company earnings, on the whole, the value of a company is based on fundamentals that shouldn’t change dramatically overnight.
Position traders can take a view on the longer-term outlook of a company – say over months or even years – based on analysis of earnings, management, and sector news.
Indices are ideal for position traders. They tend to exhibit less volatility than other markets and have longer-term trends that are easier for position traders to identify.
Yes, commodities are closely linked to economic health, so they move in overarching trends.
Position traders can follow the cycles of booms and busts and get indications of future outlooks from macroeconomic data releases and industry-specific news.
Yes, although position trading forex is less common than shorter-term forex approaches, many traders still use position trading forex methods based on long-term macroeconomic trends.
Currency traders often combine fundamental analysis and position trading with the evolution of a trader principles to build long-term forex positions.
A common debate is position trading vs swing trading. While swing traders may hold for days or weeks, position traders may hold for months or years.
In position trading vs swing trading, the key difference is duration, trade frequency, and reliance on long-term trends.
Short position trading involves profiting from a long-term bearish trend by selling or using derivatives to benefit from falling prices.
Many short position trading setups rely heavily on macro trends and technical breakdowns.
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Longer-term positions are less impacted by volatility risk, as the focus is on the larger trend
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Position trading might be the right style for you if you’re:
For traders exploring what is position trading, comparing position trading vs swing trading, learning position trading forex, understanding core position trading, and applying a solid position trading strategy can provide a strong foundation. Many experienced traders also emphasize fundamental analysis and position trading evolution of a trader as a major edge in long-term market success.
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