Position trading in forex is a unique strategy, but there are endless strategies traders use to maximize profit and minimize risks, which of them could be the right choice for you? While each of these strategies can have its advantages and obstacles, one that has become popular among traders is the Position Trading strategy. It’s a long-term approach where traders hold their positions for weeks, months, and even years, sometimes unlike the day trading strategy or scalping, which involves quick trades within short time frames. This article will delve into the concepts of position trading forex, how it works, and how beginners can start earning through this strategy.
How Does Position Trading Work?
Position trading in forex is a strategy quite popular among traders, focusing on the long-term in the forex market. Position traders’ goal is to profit and capitalize from major shifts in market trends over elongated periods. This strategy is mainly preferred by traders who want a less time-intensive trading approach and are willing to wait for more significant profits. Traders in this strategy analyze macroeconomic trends, interest rate differentials, and geopolitical events that can determine the appreciation and depreciation of currency pairs among each other in the long run. Position traders usually make fewer trades compared to day traders and scalpers but aim for a more considerable profit margin with each position.
Position Trading for Beginners
Position Trading forex is all about identifying long-term market trends and capitalizing on them. Let’s break it down into four steps:
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Research and Analysis: Position traders evaluate and conduct extensive research to understand global economic trends, interest rate policies, and other geopolitical factors. With thorough research, traders can better understand which currencies might strengthen or weaken in the long run.
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Technical Analysis: Technical analysis plays an important role in position trading alongside fundamental analysis. Traders usually use long-term charts like ِdaily or weekly to study and identify potential trends and their entry and exit points. This includes studying moving averages, support and resistance levels, and other indicators.
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Setting Entry and Exit Points: Traders complete the research and then decide when to enter and exit a trade. Position traders are willing to tolerate market fluctuations and keep their positions for weeks or months to profit.
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Patience and Discipline: Positions trading requires a great deal of patience and discipline, as traders must be willing to hold their positions through ups and downs, confident that the long-term trend will work in their favor.
Which Chart is Best for Positional Trading?
Position traders analyze various charts, but the most common ones are the Daily and weekly charts. Daily charts give traders a broader view of the market and help them identify long-term trends. Weekly charts are especially useful for determining overall market direction and trend strength. Traders also use monthly charts because it gives them an even larger view of the market. Position traders often use these charts to assess the historical performance of a trading instrument and determine if there are any major patterns and trends that can potentially reappear.
Both weekly and monthly charts are ideal for position traders, as they help them avoid the noise and short-term fluctuations that are common in daily or hourly charts.
How Long Do Position Traders Hold?
Position traders typically hold their trades based on their approach and how long the identified trend persists, but most traders using this strategy hold for weeks, months, or even years. The key for position traders is to remain patient and stay committed to their trades until the market trend they’re betting on fully materializes. For example, Warren Buffett’s investment in Coca-Cola is one of the most successful and prime examples of long-term position trading. He initially invested about $1 billion in Coca-Cola shares in 1988. In recent years, this investment has grown significantly, and now the shares are estimated to value over $28 billion (Berkshire Hathaway, 2022. Annual Report). The exact return can fluctuate with market conditions, but in this example, we can clearly see that Buffet’s long-term investment philosophy emphasizes patience and the benefits of holding quality companies over time.
Why is Positional Trading Best?
Position trading forex, when applied correctly, is considered best for long-term trading strategies for several reasons.
Unlike day trading, position trading does not require constant monitoring of the market, and it is less time-intensive. Traders can spend more time on research and make more informed decisions. Furthermore, position traders hold onto their trades for extended periods. They have the potential to profit from major market moves that short-term traders might miss.
Since position traders are not constantly watching the market, they often experience less stress than those who frequently trade. Additionally, fewer trades mean fewer transaction fees, which can increase over time. This is an advantage for position traders compared to more active traders.
Can You Position Trade in Forex?
Shortly, yes traders can position trade in forex, but it’s not quite advisable for beginners and most traders who have the patience knowledge and risk tolerance to hold long-term market movements prefer position trading in forex.
Which Instruments are Most Preferred by Traders in Position Trading?
Generally, Traders in this strategy prefer indices, stock shares, and commodities, which are more suitable for position trading. Traders should carefully choose the instruments they want to trade and select an appropriate strategy for them to avoid unnecessary losses.
How to Start Position Trading? (Position Trading for Beginners)
If you’re a beginner aiming for long-term strategies, position trading can be an excellent way to start in the forex market. With this strategy, traders can have a more relaxed approach while still potentially earning substantial returns. The key here is to stay disciplined, focus on long-term trends, and not let short-term market fluctuations impact your decisions.
For beginners looking to start position trading in the forex market, here are a few steps:
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Learn the Basics: understand the forex market and how the instruments behave. Beginners should familiarize themselves with both technical and fundamental analysis.
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Develop a Plan: Creating a plan in the forex market involves deciding which instrument to trade, which indicator to use, what time frame to analyze, and how to approach the market overall. A good strategy is one that’s logical and based on sound research with a solid risk management layout.
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Use a Demo Account: Before risking real money, practicing the strategy in a safer environment is critical. This way, traders can refine their approach and build confidence through experience.
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Patience: Be patient, this may be the most important quality for position traders. Markets can take time to move favorably for traders, however, success in this strategy requires a long-term perspective.
