Where investments are typically held for a period of years or even decades, trading involves the frequent buying and selling of stocks, commodities, currency pairs and various other securities with the intention of generating returns that outperform a buy-and-hold strategy. Position trading encompasses the longest trading time frame in which trades span a period of months to years. Position traders may use a combination of technical and fundamental analysis to make trading decisions and often refer to weekly and monthly price charts when evaluating the markets.
Many position traders will take a look at weekly or monthly charts to get a sense of where the asset is in a given trend. Position trading is the polar opposite of day trading because the goal is to profit from the move in the primary trend rather than the short-term fluctuations that occur day to day. This type of trading is attractive to people who either have limited windows of time to trade or people who want to diversify their trading with both long and short-term trading strategies.
This kind of forex trading is reserved for the ultra-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.
Forex 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. Also you need to have enough capital to withstand several hundred pips if the market goes against you, and you don’t mind waiting for your grand reward.
One style of trading isn’t better than another; certain styles just suit different people’s personalities and circumstances. Position trading is for people who like to do some research initially, but once a trade is placed, the position requires very little time to monitor or manage. Position trades take place in nearly all markets and can include both buying or taking short positions. Trades are found based on research that indicates a currency piar could begin to trend, or chart pattern breakouts and technical indicators signaling the potential start of a trend or that a trend is underway.