Position Trading

Position trading is a particular style that involves long-term trading and has some similarities with investing. A position trader opens a position and waits for the result within a few months, or possibly years.

How is position trading different from investing?

Now, both involve some kind of investment, but the investors are actually buying shares for real, while position traders are trying to speculate from the price changes and can even go short. Investors spend hours studying the financial statements and balance sheets of the companies in which they expect to invest. For them, the financial records represent the main focus, so we see that the fundamentals involving companies’ financial reports are everything for them.

Position traders are different: they don’t completely ignore technical analysis, but they are generally dealing with large timeframes, such as weekly or monthly. However, technical analysis is of secondary importance with this trading approach, while fundamental analysis is still of primary importance. It is assumed that the most important skill of a position trader is the ability to distinguish between important economic news from news that is unworthy of attention.

Advantages and disadvantages of position trading

The debate about what is more profitable – intra-day trading or position trading will undoubtedly always be there. Each trading style has its own distinct advantages and disadvantages. The advantages of position trading include the following:

The negative factors have a minimum degree of influence – if a trader buys, for example, on the weekly chart, he won’t be shocked about the daily price fluctuations. The position trader feels less stressed compared to the day trader.

The ability to “squeeze out” the maximum of a trend – position traders do not have to regularly open and close positions, thereby losing on spreads.

High profits – position traders can trade with high leverage, as the probability of a mistake is much smaller than in conventional trading.

At the same time, long-term trading has its drawbacks:

The need for a high deposit – position trading with the minimum amount of funds is simply irrelevant. It is likely that the strong price fluctuations will lose everything.

Swap – the swap is a commission paid to the broker for the transfer of the trade to the next day. If the position is open for a long period, the swaps can accumulate a large amount.

Risk – the risk is much lower when compared to day-trading or swing trading, but if a mistake is made, it will likely be fatal. If a trader goes against the trend, he will lose not only his deposit, but also the time in which he could generate a profit – don’t forget, we are speaking about months.

What does a position trader require?

Here is what a position trader must have:

Large enough deposit – the price fluctuations in the larger time-frames can be very significant, so if the deposit is small, it is very likely that the trader will have to leave the game, getting a margin call.

Emotional control – a position trader should be ready to calmly watch as he loses money. The reason is the same: the likelihood of significant amplitude of market fluctuations.

Excellent knowledge of the market and of the selected assets – the trader has to analyze the companies’ reports. For the larger picture, he must follow the political situation, the tax policies, the interest rate decisions, and so on.

The ability to think independently – the position trader has to remain indifferent about the opinions expressed in the media or the viewpoints of colleagues and persist with his own strategy.

Position trading strategies

Most of the position trading strategies are following the trends and are searching for higher highs and lower highs to assess the price dynamic.

Many long-term traders prefer to work with exponential moving averages (EMA). This is because these moving averages suggest that recent data is more important, while the simple moving averages (SMA) don’t make a distinction. Generally, when a faster EMA is crossing a slow EMA from bottom to top, this is a signal for a long position, and vice versa.

Here is a strategy example on the chart below. When the EMA 12 (red) crosses the EMA 36 (green), this is a signal for a long position, and vice versa:

Notable supporters of position trading

Probably the most popular supporter of long-term trading is Warren Buffett. “When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever” – says a Buffet quote.

Position trading steps

The position trader has to:

  • Carefully analyze the traded company;

  • Figure out the company’s fundamentals that can support the long-term growth of price;

  • Figure out which stocks are currently under- and overvalued;

  • Analyze the company’s reports every quarter or more frequently if possible;

  • Analyze the market sectors and specialize in one or more sectors;

In conclusion, position trading may be an ideal trading style for you in the case where you have a solid deposit potential and don’t want to monitor the price fluctuations every minute. You will have to use fundamental analysis to choose the stocks and technical analysis to determine the right entries.


Jason Bond

Jason taught himself to trade while working as a full-time gym teacher; his trading profits grew eventually allowed him to free himself of over $250,000 in student loans!

Now a multimillionaire and a highly skilled trader and trading coach, Over 30,000 people credit Jason with teaching them how to trade and find profitable trades. Jason specializes in both swing trades and in selling options using spread trades, which balance the risk of selling options. Jason is Co-Founder of RagingBull.com and the RagingBull.com Foundation which donates trading profits to charity. So far the foundation donated over $600,000 to charity.

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