Position trading is a popular trading strategy that traders and Forex Expert Advisors use to benefit from long-term trend patterns. Compared to other trading strategies, position trading sees trades opened and left to run for weeks, months, or even years. Conversely, position trading is an ideal trading strategy for long-term investors.
Traders, as well as forex robots deploying position trading, do not pay attention to short-term price movements. Instead, the focus is on long-term trends from where optimum profits are generated. Unlike scalping, swing trading, or news trading positions, traders pay more attention to long-term returns. Therefore, position trading has all attributes akin to investing.
Being a long term investing strategy, position traders don’t need to monitor open positions. Similarly, the trading strategy is synonymous with reduced risk levels as short term fluctuations do not affect the expected projections. Likewise, the trading strategy is synonymous with reduced stress levels, whether in manual trading or automated trading.
Position Trading Strategies that Work
Position trading entails strategies using different technical analysis. Similarly, strategies using fundamental analysis are also taken into consideration to ascertain ideal entry and exit points. That said, position traders, as well as FX Expert Advisors, use fundamental and technical analysis to identify potential price targets within the market.
Below are some of the best position trading strategies.
Position Trading With Moving Averages
Moving Averages are some of the best forex indicators that traders and Forex EA use to generate trading signals and manage trades in position trading. While there are many moving averages, the most popular used in position trading is 50-Day Moving average, 100, and 200 Day Moving Average.
Likewise, whenever the 50-Day Moving average crosses the 100 or 200 Day Moving Average from below on the daily chart, the same is interpreted as the commencement of a bull trend. In this case, Position traders use this opportunity to open long positions.
Conversely, whenever the 50-Day Moving average crosses the 100 or 200-day moving average from above, the same signals commencement of a bearish trend. A technical analyst or an FX EA can consequently use this opportunity to enter short positions.
As one of the most important forex trading secret using the moving average strategy in position trading, the idea is to be in sync with the market as indicated with the moving averages
Support and Resistance Trading
Support and resistance levels have also been used with a great degree of success in position trading. In long, time frames support level would appear as price points whereby price does not fall below. In most cases, the price would bounce back off this level. Resistance, on the other hand, would be a price level where price struggles to go through in case of an uptrend.
To identify reliable support and resistance levels, position traders analyze various chart patterns. By studying chart patterns, traders as well as forex charting tools used in automated trading pay close watch to a historical price. Previous support and resistance levels can also indicate future levels but, in this case, in reverse. In most cases, resistance can end up becoming support upon a breakout on the upside, and support becomes resistance upon a breakout on the downside.
Support and resistance levels are commonly used for trading breakouts. Whenever the underlying price breaks through a well-defined resistance level, the same signals the commencement of an uptrend. Similarly, position traders use this opportunity to enter long positions.
Conversely, whenever price break-through a defined support level. The same may signal the commencement of a new downtrend. In this case, traders would open short positions.
Pullback and Retracement Strategy
The pullback and retracement is a common trading strategy among position traders. A pullback is simply a short dip or reversal in a security’s prevailing price trend. Whenever such pullbacks occur, position traders take advantage in anticipation that price will bounce back to the long-term trend.
Moving averages play an important role in taking advantage of pullbacks in trending markets. For instance, whenever price pulls back to the 50-day moving average, a position trader might open a buy position should price fail to break through and close below the moving average.
Similarly, in case of a downtrend and price pulls back or reverses close to the 50-day moving average, a position trader or forex robot might open a short position should the pullback fail to close above the moving average.
Position trading is an ideal trading strategy akin to investing. The trading strategy entails taking advantage of long-term trends to generate profits in the end. Unlike scalping new trading or swing trading, position traders seek to profit from long-term movements.
One of the most significant risks associated with position trading is a trend reversal. Should the underlying trend reverse significantly, then there is usually a high risk of traders incurring significant losses. Position trading is also synonymous with low liquidity as a trader’s capital is generally locked in for relatively long periods.