Position trading is an investment in which the investor holds a position for a long period and looks for ways to maximize profits. Although there are many types of trading, this guide will focus on position trading. We aim to explain how position trading works and offer tips for developing effective position trading strategies for aspiring or experienced investors.
What is position trading?
Position trading has the longest holding period of all types of trading. Due to this, the profit potential is greater, but the risk is also higher. Several famous traders made their fortunes by implementing position trading strategies throughout history.
For instance, Joe Ross mentioned what is likely the longest position trading period on record (from 1991 to 2000) in one of his latest newsletters. With a trailing stop triggered only when he felt that a good profit had been made, the investor in question closed a long-term position in the S&P 500 with a profit of 16 million dollars after holding it for years.
Phillip A. Fisher was also a famed position trader who made excellent investments, focusing on companies with encouraging data; as well as was an excellent investor and being followed by Warren Buffet. As early as 1955, Fisher made a long-term investment in Motorola shares and held it until his death in 2006.
Features of a position trader
Traders who hold investments for an extended period are known as position traders. As we’ve already mentioned, positions typically last for months or even years. Short-term fluctuations are less important for position traders unless they are likely to impact the position’s long-term outlook. Position traders are trend followers by definition. Since they do not trade actively, long-term buy-and-hold investors usually hold their positions longer than position traders.
A position trader typically uses technical analysis and fundamental analysis during the decision-making process, as well as factoring in market trends and historical patterns. To be a successful position trader, one must determine when to enter and exit a position and when to place a stop-loss order.
Position trading strategies
Traders who buy positions typically monitor and evaluate market movements using fundamental and technical analysis. The following are some examples of positions trading strategies:
Support and resistance trading
Trading strategies based on support and resistance determine where to enter and exit markets. A support level is the predicted minimum price for an asset, whereas a resistance level is where its value stops rising. Individuals should focus on the following to make this strategy work:
- Prices throughout history
- Levels of previous support and resistance
- An investor can determine the market’s best entry and exit points based on technical indicators and analysis methods, such as Fibonacci retracements.
Breakout trading
Trading breakouts aim to take advantage of trends while still in their infancy. To get the best results from this system, traders must identify periods of support and resistance to time their move perfectly. A breakout trader buys when the price breaks above a resistance level and sells when the price falls below a support level.
Range trading
The most common time for range trading is when the market moves and fluctuates without any obvious trends. Oversold assets can be purchased, and overbought assets can be sold with range trading.
Pullback
The pullback trade allows traders to take advantage of dips in the market value and plateaus in upward trends. As soon as the downward movement ends, it is time to buy again and then sell when the upward movement resumes.
Bottom line
Aside from using strategies to identify risks and opportunities, traders should also consider additional factors, such as the market’s state. When trends and movements are clear, the best time to trade positions is during a bull market. Trading like this is more difficult in a bear market when the market is flat or moving sideways.
