Top Position Trading Strategies for 2023
In the financial markets, there are a variety of trading styles that are used. Position trading is a style which involved holding trades for a longer period than most other styles.
In this ‘Top Position Trading Strategies’ article, we cover what a position trader does and how to start position trading forex and other asset classes.
Table of Contents
What is Position Trading?
What is position trading? Position trading is a style of trading in which the trader holds a position for a longer period than most other styles. The period could be several months to years.
Position traders tend to combine technical analysis for timing a trade and fundamental analysis to analyse the potential of a long term directional move.
In some ways, the style of trading is not too dissimilar from long term investing. But, as position traders use products such as CFDs (contracts for difference), they can trade long term positions to the long side and short side whereas a traditional investor is more limited to just the long side of a market. However, due to holding costs when using CFDs position traders would hold traders for months rather than years.
You can learn more about trading the financial markets in the Zero to Hero trading course.
Swing Trading vs Position Trading
The main difference between position trading vs swing trading is that swing traders would speculate on the shorter-term swings in the market holding trades for several days or weeks at a time.
Position Trading Forex, Stocks and Commodities
As position trading is simply a style of trading the financial markets you can use it on different asset classes.
Position Trading Forex
This involves identifying long term trends in the currency market. As the current market is one of the most volatile markets around, position trading forex will involve waiting for macro themes or event-driven moves to develop.
For example, when the UK voted to leave the EU in 2016, this caused a huge sell-off in the British pound. Investors pulled their capital from UK assets due to the uncertainty Brexit would cause. A position trader would have built a long term position using this event as a driver of a longer term move.
Interest rate policy can also be useful when position trading forex. During 2022, most central banks such as the US Federal Reserve started to increase interest rates after cutting them to record lows during the pandemic. However, the Bank of Japan left interest rates at record lows.
This caused long term money market fund managers to borrow money in Japan only paying a small amount of interest to do so and converting into US dollars to buy a bond paying out higher interest and then pocketing the difference between the two interest rates.
Position traders in the forex market could have used this event to buy USD/JPY which experienced a long term move higher for most of 2022. This type of position trading is known as the carry trade in forex market.
Learn how to master the forex market with the free Forex 101 course.
Position Trading Stocks
The stock market tends to exhibit more longer term trends than most other asset classes. This is because a stock represents a publicly traded company. As publicly traded companies aim to grow the business with more revenue and profit it can lead to a higher share price.
Long term investors may hold stock investments for years to decades. Position traders may hold a stock trade for many months to a year to try and capitalise on the early part of a trend. However, the stock market does not move up all the time as seen in the bear market during 2022.
Products such as CFDs (contracts for difference) allow traders to speculate on rising and falling prices. Therefore, position traders in the stock market can trade on both sides of the market. However, as CFDs involve overnight fees it may not be suitable for some long-term trends.
Some investors may use position trading strategies on stock indices to hedge a portfolio of stocks. While challenging to get right, the theory suggests that if a stock portfolio is declining, a trader can trade a stock index short and profit from a falling market. Theory suggests this could hedge the portfolio as any profits from a short trade could cover some of the losses experienced in a long only stock portfolio.
Position Trading Commodities
The commodity market can also be traded using position trading strategies. This is because throughout time commodities can exhibit long term trends although they are usually more volatile than a stock. This is because there are far more influences on the price of a commodity such as supply, demand, geopolitical issues and exchange rate fluctuations.
Commodities such as gold and oil can also go through periods of long term up trends and down trends. Oil prices crashed during the pandemic period only to rally sharply afterwards. Position traders would attempt to capitalise on these moves by trading CFDs or commodity ETFs.
Position Trading Strategies
Some position trading strategies include:
+ Trend trading. This involves identifying a market exhibiting long term trend through technical analysis and fundamental analysis. Market cycles and indicators such as moving averages can help confirm a trend, while the fundamental narrative can help to drive a trend further in a certain direction.
+ Breakout trading. This involves identifying a period of consolidation in a market and trading price once it breaks out of this consolidation period. Traders can use technical analysis tools such as horizontal support and resistance lines to confirm a breakout and fundamental analysis as the drive force behind the move.
Advantages of Position Trading
- A chance to capitalise on long term trends.
- Trading longer term trends involves less short term decision making.
- Position trading can provide traders the potential to capitalise on global themes.
Disadvantages of Position Trading
- Markets can be very volatile so while a trader may want to trade a long-term move, the market may not be in the right condition to do so.
- Trading capital is tied up for longer which could mean less capital on other opportunities that may perform better.
- If using margin based financial products such as CFDs (contracts for difference), the overnight swap fees can eat into most of any trading profit.
How to Start Position Trading
One of the best ways to get started with position trading strategies is to use a demo trading account. This allows you to trade in a virtual environment to test your skills and strategies until you are ready to go live.
It also provides the opportunities to test all the financial products, features and services offered by your broker. You can open a free Admirals demo trading account today.
FAQs on Position Trading
1. What is a position trade?
Position trading strategies involve holding trades for the long-term and positioning yourself for the move. It can be done on forex, stocks, indices, commodities and any market is exhibiting long-term trend characteristics.
2. Is position trading good for beginners?
Position trading can be for all levels of traders. However, it involves research, practice and proper risk management as with any form of trading wins and losses are involved.
INFORMATION ABOUT ANALYTICAL MATERIALS:
The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admirals investment firms operating under the Admirals trademark (hereinafter “Admirals”). Before making any investment decisions please pay close attention to the following:
1. This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
2. Any investment decision is made by each client alone whereas Admirals shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content.
3. With view to protecting the interests of our clients and the objectivity of the Analysis, Admirals has established relevant internal procedures for prevention and management of conflicts of interest.
4. The Analysis is prepared by an independent analyst (Jitan Solanki, hereinafter “Author”) based on personal estimations.
5. Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admirals does not guarantee the accuracy or completeness of any information contained within the Analysis.
6. Any kind of past or modelled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admirals for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
7. Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, please ensure that you fully understand the risks involved.