Learning to master the art of position trading strategy
We all know that science has various sections like physics, biology, chemistry, astronomy etc. Again, each of these subjects has more branches like biochemistry, astrophysics, environmental science and many more. Similarly, when we are talking about trading, there arises various sections and types of trading like High-Frequency Trading, day trading, sleep trading etc. One of such trading style is the position trading.
Many of you may have heard about this trading style while many of you haven’t. But if you are an insider of the trading industry, then there’s no way you have never heard of this type of trading.
The participants of the trading field are different from each other and have varying styles depending on their investment, dedicated time and research. That’s why a day trader has different styles from a position trader but that doesn’t mean a certain type of trading is right while the other is wrong. Each trading style has its distinct characters and has both advantages and disadvantages.
Since this article is about position trading, we will be focusing more on the traits of position trading to guide the traders with more trading insights.
Definition of position trading
According to the trading protocol, position trading is a trading strategy where traders hold onto their stocks for a long period. Here, the UK traders hold onto their stocks for several months to years. To more info about position trading, you can visit the website of Saxo and explore their free educational resources.
Position traders mostly depend on the big picture of the trading market rather than looking at the smaller details. They usually trade based on trends instead of rushing to buy or sell stocks at price fluctuations. But, why do they do so?
Price fluctuations can occur several times a day but such fluctuations don’t give rise to breakouts and new trends. In the usual price fluctuation, the difference between opening and closing price isn’t much so the profit is also not higher. On the other hand, when a breakout happens, a downtrend can turn into an uptrend overnight. So, new resistance and support is created and here, selling the stocks become more profitable.
But, trends don’t change within seconds. A trend may remain in the same position for several days. As a result, position traders need to hold on to their trades for a long time. While the position traders are waiting for the trends to change, the short term traders are profiting on the price fluctuations and the numbers. So, investors are often deprived of many trading opportunities than short term traders.
- In position trading, the risk is much lower and traders can deal with higher investment in this trade. position traders can also invest in all-in trading.
- While other traders are looking for executing their trades at the marginal profit lines, position traders observe the market to know the highest profitable exit points.
- This trading is less stressful as they don’t need to worry about the risks and don’t need to hurry about closing their trades.
- In this trading, traders also get enough time to come up with the best decision for their trade as they have much time left in their hands.
- Position traders don’t need to monitor the charts as much as the short-term traders need to do. Since they are looking at the trends, the daily price fluctuations have less impact on their trades.
- Traders need to hold on to their stocks for a long time and this leads to lower trading opportunities.
- Sometimes, brokers impose time limit in position trading which makes the traders end their trades way before the most suitable time.
- If by any chance a trader fails a trade, he faces a huge loss in his investment. Because the higher is the investment, the higher is the loss.
- The leverage given here is comparatively high.
Despite some disadvantages this trading has, it is a good style if you are looking for more emotional trading scopes rather than technical analysis.