Forex Position Trading
There are many different strategies that traders pick from. As a beginner, it is common for a trader to run through all types of trading until he or she finds the style most suited for them. This kind of searching may take a couple of weeks, months, or years dependent on the person.
Make sure to check out our What Type Of Trader Are You article to learn more about other trading styles.
Now, in this article, we will strictly be observing position trading as a strategy used in the Forex markets. What is position trading?
Position trader: According to Investopedia, a Position trader refers to an individual who holds an investment for an extended period of time with the expectation that it will appreciate in value.
Characteristics of a Position trader:
1. Position traders work more on the fundamentals of a pair.
For a position trader the direction, overall movement, of a Forex pair is what matters most. The fundamental announcements that may cause a certain reaction in the market that may have a long term effect on the pair which is what position traders seek to capitalize on.
The average position trader uses technical indicators for further confirmation on their bias to add to their edge. These technical indicators may range from the RSI (Relative Strength Indicator) to the Bollinger bands or MACD (Moving Average Convergence and Divergence). According to what works best for that particular trader.
Position traders use the fundamental analysis to determine their duration within a trade. When they can determine this they then sit back and relax, for weeks, months, or even years!!!
2. Focus on the long-term price movement
Now you may be wondering, surely if someone is holding a trade for months or even years that then becomes an investment – well yes, this is how a lot of hedge funds operate. This style gives balance to their risk management. Especially if the trade is profitable. Because if it is then they win BIG! Position traders aim to maximize the profit potential to the very last cent.
Position traders are patient individuals who are not fazed by pullbacks or minor price fluctuations because they are focused on the long-term trend of the markets.
They view the bigger picture, and the only way their views of the market change are if the bigger picture changes and the fundamental occurrence is big enough to create a complete reversal. This patience is required to catch the bulk of the bullish or bearish move.
Now it is also important for you to understand that there are advantages and disadvantages to position trading in the Forex markets.
Advantages of position trading in Forex
- Trend capitalization is huge. You are on the winning side for a very long time and the percentage gains over these periods can be compounded.
- Mitigation of “noise”. This means because you see the bigger picture you don’t manage your trades the same way other traders would, you can withstand the pressure of the market in this regard as long as you have the correct risk management parameters in place.
Disadvantages of position trading in Forex
- When ignoring the minor price fluctuations you may miss early exit signals, through the reversal patterns that may form.
- Your risk and liquidity for longer-term traders must be higher. Your stops are further and you may be charged a higher commission over time by your broker. This may run your account into the earth’s core. Make sure you chose a stable broker such as Plus500.
So at the end of the day, position trading is a great strategy if you are looking to occasionally monitor your trading positions.
Happy trading Traders
Trade smart, not often!