Position trading is the longest term trading and can have trades that last for several months to several years!
Position traders ignore short-term price movements in favor of pinpointing and profiting from longer-term trends.
It is this type of trading that most closely resembles “investing”. The crucial difference is in markets outside forex, “investing” usually means you hold positions that are long.
This kind of forex trading is reserved for super PATIENT traders and requires a good understanding of the fundamentals.
Because position trading is held for so long, fundamental themes will be the predominant focus when analyzing the markets.
Fundamentals dictate the long term trends of currency pairs and it is important that you understand how economic data affects your countries and its future outlook.
Because of the lengthy holding time of your trades, your stop losses will be very large.
This means that your losses can end up being huge, but it also means your profits can be yuuuuge (“huge” in Trumpglish).
You must make sure you are well-capitalized or you will most likely get margin called.
For an idea of how much money you should have in your trading account, check out our risk management lesson.
Position trading also requires thick skin because it is almost guaranteed that your trades will go against you at one point or another.
These won’t just be little retracements either.
You may experience huge swings and you must be ready and have absolute trust in your analysis in order to remain calm during these times.
While fundamental analysis plays a much larger role for position traders, that doesn’t mean that technical analysis isn’t used.
Position traders tend to use both fundamental and technical analysis to evaluate potential trends.
Here are some trading strategies utilizing technical analysis that position traders use:
The 50-day moving average (MA) and 200-day moving average (MA) indicator is a significant technical indicator for position traders.
The reason for this is due to the fact these moving averages illustrate significant long-term trends.
When the 50-day MA intersects with 200-day MA, this signals the potential of a new long-term trend.
When the 50-day MA crosses below the 200-day MA, it is known as the “ Death Cross“.
When the 50-day MA crosses above the 200-day MA, it is known as the “ Golden Cross“.
These longer-term MAs are popular chart indicators for position traders.
Support and resistance levels can signal where the price is headed, letting position traders know whether to open or close a position.
A support level is a price level that, historically, does not fall below. These “historical” support levels can hold for years.
A resistance level is a price level that, historically, tends not to be able to break. These “historical” resistance levels can also hold for years.
If position traders expect a long term resistance hold, they can close out their positions before unrealized profits stars melting away.
They may also enter long positions at historical support levels if they expect a long term trend to hold and continue upward at this point.
This strategy requires that traders to analyze chart patterns. When analyzing the chart, position traders consider three factors when trying to identify support and resistance levels.
Trading breakouts can be useful for position traders as they can signal the start of a new trend.
Breakout traders using this technique are attempting to open a position in the early stages of a trend.
A breakout is where the price moves outside defined support or resistance levels (preferably confirmed with increased volume).
The idea behind trading breakouts is to open a long position after the price breaks above resistance or open a short position when the price breaks below support.
To successfully trade breakouts, you will need to be confident in identifying periods of support and resistance.
A pullback is a short dip or slight reversal in the prevailing trend.
This strategy is used when there is a brief market dip in a longer-term trend.
Pullback traders aim to capitalize on these pauses in the market.
The idea behind the pullback strategy is this:
If executed successfully, a trader can not only profit from a long-term trend but avoid possible market losses by:
To help identify potential pullbacks, you can use retracement indicators, like the Fibonacci retracement.