Trading is all about risk vs reward. It is because trading without leverage increases potential rewards exponentially. Still, the same multiplier applies to losses, meaning that should the price suddenly move against you, your loss will be exponentially more significant than your profit should the price suddenly turn around in your favour.
Position trading is one of many forms of trading available and falls under the umbrella of ‘algorithmic trading’. Position traders make trades on a slower time scale than day-traders or swing traders – using indicators that give them buy/sell signals at longer intervals (orders can last for months rather than minutes).
Indicators that are used include moving averages, Ichimoku Clouds, Bollinger Bands and RSI. A typical position trade will utilize all of these indicators to give a buy signal at the lowest point in a downward trend and a sell signal when prices return to an upward trend after touching the bottom of a downward one.
Once you have your signals, you’ll need to make sure to place an order with your broker. It is where things get tricky for new traders – most brokers only accept market orders, not limit orders.
Market Orders:
A market order will execute an order at whatever price it finds on the other side of the trade – so should you put in a market buy order when RSI is giving an oversold signal. Still, someone has already put in their sell-order at the current low price; then your buy-order will be executed at this ‘market’ price, not the price you set when placing your order.
Limit Orders:
A limit order is where you set a take-profit or stop loss for your position and only execute the trade should prices reach this point. For example – if RSI is giving an oversold signal, Bollinger bands are tightly around the current price. It’s not safe to place a market buy order yet as there could be considerable downside before any upward trend begins. Instead – try putting in a limit buy order at 1% below the current market value. This way, if prices drop suddenly due to news etc., your position will only be executed once markets return to their normal range.
Common Position Trading Strategies
Traders who use position trading methods can focus on the long-term picture rather than reacting to short-term market noise. Position traders disregard minor trend fluctuations. Therefore they need strategies that are rooted in rationality and analysis.
Breakout Trading Strategy
Traders in a breakout trading strategy wait for the price line to cross a support or resistance level. When the overhead resistance is broken, the trader enters an extended position. Conversely, when the price breaks through the support line, he closes his trade. This trading technique will pay off if you are adept at detecting recurring support and resistance levels.
Pullback and Retracement Trading Strategy
The fact that traders use pullbacks to plan entry demonstrates how important they are in the market. Traders look for pullbacks in their trading techniques to guide their entry. The policy is to buy low and sell high, which means you should buy low and sell high when the price drops during a pullback. When the price drops during a pushback, traders enter the market.
Range Trading
When the price moves within periodical highs and lows, traders employ a range trading method without any apparent trend. Traders utilize price range methods to identify oversold assets to buy and overbought assets to sell.
Conclusion
Position traders rely on fundamental and technical analysis to understand the market movement. These techniques aren’t simple to follow, especially for inexperienced investors, but if you’re interested in positional trading, they’ll help you become more comfortable with your decisions.
If all of that sounds a bit complicated, then don’t worry – it is! Trading isn’t for everyone, and I’d recommend starting by reading as much material on investing as you can before making any moves. A perfect place to start learning about trading is at Saxo Bank. Check them out!
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