A position trader is a trader who keeps assets for an extended length of time. They might keep positions for months or even years on end. Position traders, by definition, are trend followers since they are less concerned with short-term movements unless they can impact the long-term development of their position. Most positioning traders do not trade actively and are overtaken by long-term buy-and-hold investors throughout their trades.
Traders that follow this trading style generally use both technical analysis and fundamental analysis when making decisions, but they also consider other variables such as market trends and previous trends. Position traders are those who have excellent entry and exit points as well as the ability to set a stop-loss order if necessary.
A position trader purchases an asset to profit from its value appreciation in the long run. This trader is less concerned with short-term fluctuations in price and current news unless they shift the perspective of the position trader’s long-term view.
Position trading vs swing trading
Even though position trading and swing trading have a similar concept, they differ in investment duration. Position traders keep their positions for a more extended period than swing traders, usually months or years, whereas swing traders generally keep their positions for days or weeks.
Position trading vs day trading
The polar opposite of a day trading approach is a trading method that employs short-term market movements. Day traders attempt to buy and sell many assets to close their transactions before the end of the trading day, with little or no intention of holding them overnight.
Advantages of position trading
- There is more time for other activities or professions since position trading requires attention when evaluating a potential stock.
- It’s a long-term plan that may produce significant benefits.
- Because positions do not have to be watched daily, there is less pressure on the trader than with some short-term strategies.
Disadvantages of position trading
- Because trading positions with little money are impossible, massive deposits are required. Price swings of this size are more likely to result in the total loss of the invested cash.
- To keep positions open for a long time, significant capital is required. Trades can last for several months; therefore, the money is tied.
- Position trading has a lower danger than daily trading or swing trading, but it will almost certainly be fatal if a blunder is made. If the trend is not followed, the trader will lose his deposit and time spent.
- Swap fees can add up if a position is left open for a long time.
Is position trading right for you?
Each trading style must be matched with a trader’s objectives, and each has benefits and drawbacks.
The first consideration is why you are investing. Have you already planned for retirement? Do you want to create a career in trading? Or do you like to dabble in the market and want to invest in a firm? And how much time each week or day would you devote to tracking your portfolio?
Day trading is effective in a bull market when the trend is strong. It isn’t as simple to day trade in a bear market. Day trading might be beneficial during a stagnant market, moving sideways and wiggling around.
Last but not least
Position trading is a type of trading strategy where traders seek to capture more significant, multi-day market moves. Rather than trying to profit from smaller price swings, position traders focus on taking advantage of longer-term trends in the market. It can give them a big-picture view of the market that can help them identify significant opportunities.
While position trading can offer some advantages, it also comes with risks. Because position traders hold their positions for more extended periods, they can be subject to more significant swings in the market. It means that they may have to deal with more volatility and may need to have higher risk tolerance.