Position Trading 101

Ever heard of Position trading and think? Should I even try position trading? What is the cost and benefit analysis of it? If you get that kind of question, then do not worry. We have made a little briefing about position trading—also, the things you may require and if it is a right fit for you.

Position Trading

It is the practice of ending an investment portfolio. It’s done after you reach a certain peak of achievement on the price chart. It is also known as buying and hold. For example- a position trader keeps a position open until their desired stock reaches a point they want. This they do base on their research.

Takeaway

In this kind of trading, you have to buy a security and hold it for a long time. They do this until the stock price reaches a point where they benefit, and then they sell it.

How does it work?

This type of trading needs you to be invested in them for a long time, unlike day trading or swing trading. In this kind of trading, people rely on the history of the stock and the market trend to pick the best stock. Their decision is not easily influenced by the daily market news or price level. They think in the long term. Based on that, they hold or sell the stock. They use some technical tools to analyse the potential of the stocks in the long run. Example-The 200-day moving average is a commonly used technical tool.

Let me give you an example.

Let us suppose it is 20th December. You believe that Amazon is going to benefit. If you are right, then the value of Amazon will increase in future. So, you buy ten shares at 600$. And you want to make sure if the value starts to decrease, you place a stop order loss at 580$. You’re happy with your position, so you keep an eye on the stock now and then and watch it rise to around $710 by mid-February. You’re pleased with your profit and sell all of your Amazon stock, walking away with a $90 per share profit. As this example shows, position trading is simple. However, position trading does not always work out like this. There is no guarantee of profit.

Pros of position trading

When stock prices are rising in a bull market and falling in a bear market, it is sensible to go with a trend. It makes little sense to break out of the bull market and try to capture small chunks at once, in which case you may miss out on the trends and pay brokers additional fees. The downside of position trading is that the stock market spends most of its time in the horizontal territory rather than a specific trend. When the market is flat, it can be quite tough. Ideally, when you trade, you need to move in the market. It doesn’t matter if the market goes up or down. As long as the price is moving, the trader is happy.

Strategies used by traders

Fundamental Analysis Strategy

 To make money trading, some position traders learn and comprehend basic research. Fundamental analysis entails a more in-depth examination of a company’s operations. Traders examine documents such as Financial records, earnings reports, FDA filings, SEC filings, CEO comments, etc. A trader can have a better grasp of a company’s performance, future outlook, and predicted earnings by studying its fundamentals. Position traders often use fundamental analysis. Having this information can assist traders in gaining an understanding of what is on other traders’ minds.

Technical Analysis Strategy

Position traders utilise a long-term approach to discover trades, technical analysis techniques. Economic data such as the health of the labour market, inflation, interest rates, tariffs, and other factors that affect stock values over time are increasingly important to position traders. However, technical indicators can still be used to assess a stock’s potential, especially when a position trader is relying on historical data. Some of the examples of trade analysis:-

• 50-day moving average trading
• Support and resistance levels
• Breakouts
• Pullback and retracement indicators

Conclusion

One key difference between position and day trading is the time between purchasing and selling the stock. The day traders buy and sell stocks in seconds, while position traders take months or even years to buy or sell the stocks. Position trading is meant for people who are willing to wait for the long term benefit. But, if you are someone who wants quick returns or saving for retirement or just simply saving, then day trading or swing trading is for you. A position trading waits long enough so that the trade price rises to its desired price. Then they shut the position and liquidate the stock. And, while anyone who follows the stock market can become a position trader if they so desire, this trading method is likely to favour individuals who understand technical analysis and can maintain their cool and stick to their trading plan.