Position trading is a strategy wherein a trading position is held for a long period (generally weeks or months) to achieve profit. A trader normally has long-term thinking in position trading and holds the position for a prolonged period irrespective of the short-term gyrations. For example, the positions could belong (buying the asset first) and short (selling the asset first). This form of trading can also be termed trend following, and traders generally use long-term charts (weekly, monthly) to initiate trading positions.
Advantages and Disadvantages
Advantages
- Due to the long-term component, position trading is less dangerous than swing trading and day trading.
- Positional trading makes use of both technical and fundamental analysis, making the method more reliable.
- The majority of large asset movements occur over night, and positional trading can be used to profit from them.
- Compared to swing or day trading, position trading demands less constant attention from the trader.
- Leverage is readily available, which is advantageous in leveraged trading because the asset can be used as collateral.
Disadvantages
- Unlike other trading tactics, position trading necessitates long-term capital.
- Position trading calls for abilities in asset fundamental analysis, which many technical analysts lack.
- Because stop losses in position trading are broader than in other trading techniques, the cost of errors is higher.
Limitations
- Position trading performs better in markets that are moving (up and down). In a sideways market, positional trades cannot be profitable.
- It restricts capital and puts the trader at risk of liquidity issues.
Conclusion
Trading is a high-risk activity, thus before seeing considerable market success, traders must test and train themselves. Additionally, position trading is similar. To study position trading, one must invest a lot of time in observing, learning, and interpreting market movements. Analyzing historical data and identifying patterns is the greatest approach to learn position trading. It becomes quite simple to design and carry out trading strategies while adhering to basic risk management guidelines once a trader comprehends market patterns.
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