Position trading
What makes this trading style different from others, is that positions are opened for a much longer period – from a few weeks to several years. And chances of a profitable outcome here will depend on a thorough analysis – both technical and fundamental. The quality of your estimates and intelligent choice of opening and closing times of the trade can yield a truly respectable income.
Position trading is pretty close to buy-and-hold investment. It makes you less dependent on the market “wiggling” and some short-term negative factors. You may totally disregard the intra-day or even intra-week movements, thereby cutting off risks that a day trader has to face. This is similar to changing of arms: abandoning incessant shotgun firing and picking up a sniper rifle. Thus choosing to rely more on one’s patience, accuracy and correct choice of a position.
What are the highlights?
The following points will best describe how long-term traders operate:
- Trading encompasses day- and week-long timeframes.
- Positions may be kept open for months.
- Long-term trading requires a considerably higher amount of invested funds, as opposed to intra-week or day trading.
- When the market is in a correction phase, it may be likely that you miss it - simply because you were not online.
What do I need to become a position trader?
- Long-term trading involves larger risks, but consequently offers higher potential returns. Normally the required deposit amounts to several thousand dollars. Traders should be ready to expose to risk at least 5% of this money and pay the broker fee for rolling over your positions from one day to the next (this kind of a fee is called SWAP).
- Emotional decision-taking, greed and fear are the biggest enemies of your success in position trading. Always stay calm, confident and reasonable.
- It takes an ability to identify trend reversals correctly, as well as recognize the difference between monthly and yearly trends.
- Position traders will focus on market fundamentals and ignore the so-called “noise”, picking only significant pieces of news for their analysis.
- You need to know your way around various expert comments, types of market analytics and forecasts.
Benefits and drawbacks of long-term trading
Now let’s consider what this trading style has to offer on the upside, and what are the disadvantages.
Benefits:
- It gives you a lot of spare time.
- There’s no intense psychological pressure.
- Speaking of the potential profit, only position trading allows to take full advantage of the primary, long-term market move.
- No need for extra rest and recovery (“away from the trading charts”).
Drawbacks:
- There will be some standstill periods, when no action is required at all.
- Long-term trading takes a sizable amount of funds.
- In order to conduct thorough evaluation of the market, one needs a solid knowledge of theory, as well as practical experience.
Bottom line: position trading might be the style for you, if you are a seasoned trader who does not run after quick profits. Other important criteria include strong analytical and data interpretation skills, backed by a good deal of patience and money resources.