Position trading is a type of trading that takes place over an extended period, making it less susceptible to short-term market fluctuations. A trader who engages in position trading holds a security or financial instrument position for weeks, months, or even years. This longer-term perspective allows the trader to profit from the underlying trend in the market rather than trying to capitalise on fleeting price movements.
Why engage in position trading?
There are several reasons why traders might choose to engage in position trading strategies.
1. To profit from the long-term trend in the market
As mentioned above, by taking a longer-term view, position traders can benefit from the underlying trend in the market. This is in contrast to traders who focus on short-term price movements, which can be more volatile and unpredictable.
2. To reduce volatility
Position trading can help to reduce the amount of volatility in a trader’s portfolio. This is because traders who engage in position trading typically hold their positions for a more extended period, which gives them exposure to fewer short-term price fluctuations.
3. To achieve greater returns
A final reason traders might choose to engage in position trading is to achieve greater returns from their investment. By riding the wave of the underlying market trend, position traders can often generate higher profits than those who trade on a shorter-term basis.
Determine your goals
Before investing in position trading, determine why you are investing in the market and your financial goals. If it’s to make money, then you should do position trading. By doing this, one can take advantage of long-term trends in the market that often lead to greater returns than other types of trading strategies – which require more frequent buying and selling.
If you do not have a solid reason to go in the direction of position trading and hold your positions for the long run, most likely, the outcome will be negative, and one day you will abandon this approach just like many people before.
Do your research
You need to know what’s trending in the market. Once you decide which security you’re going to trade, try to understand its history by looking at long-term charts (logarithmic scale) and comparing it with current price action. It will help you better predict what’s going on next. It is crucial to diversify your portfolios because when markets turn, everything will lose value.
How to get started with position trading?
There are a few things you need to consider before getting started with position trading:
1. Choose the right security or financial instrument
Not all securities or financial instruments are good candidates for position trading. To be successful, you need to choose a security or instrument with a strong underlying trend and is not too volatile.
2. Have a long-term outlook
As mentioned earlier, to be successful with position trading, you need to have a long-term outlook. This means being able to hold your positions for weeks, months or even years.
3. Have a well-diversified portfolio
Position traders should always have a well-diversified portfolio, which will help to reduce risk and provide exposure to several different markets.
4. Have an exit strategy
Last but not least, you should always have an exit strategy in mind before engaging in position trading. You will then manage your portfolio and take profits as the market moves in your favour.
Trading requires you to stay on top of all events in the global economy because when certain things happen, these could affect instruments you hold in your portfolio, whether long or short term. As mentioned earlier, be aware of what’s going on and try not to get caught up in the moment.
If you are new to trading, we recommend using a reputable online broker from Saxo Bank for the best advice, lowest commissions and excellent customer service. Start trading on a demo account immediately before investing any of your own money. For more information, visit their website here.