Position trading encompasses the longest trading time frame; trades generally span a period of months to years. Position traders may use a combination of technical and fundamental analysis to make trading decisions, and often refer to weekly and monthly price charts when evaluating the markets. Typically, short-term price fluctuations are ignored in favor of identifying and profiting from longer-term trends.
This style of trading most closely resembles investing. However, while buy-and-hold investing typically involves long trades only (profiting from a rising market), position traders may utilize both long and short trading strategies.
The main appeal of this approach is that it doesn’t require much time. Once the initial research is done, and the position trader has decided how they want to trade the asset they’ve selected, they enter a trade and there’s little left to do. The position is monitored on occasion, but since minor price fluctuations aren’t a concern, the position requires little maintenance or oversight.
Finding Position Trades
There are several approaches to position trading, including buying assets that have strong trending potential but haven’t started trending yet, or alternatively buying an asset that has already begun to trend. Buying assets that have already begun to trend is a less research-intensive endeavor and therefore preferred by many position traders.
Finding a trend is thus the main component for a position trade. This will usually exclude any assets trading within a range, unless the price range is extremely large and spans many years. In this case, it could take years for the price to move from one side of the range to the other, which suits the position trader just fine.
Why Investors Use Position Trading
The basic tenet of stock market analysis is that stocks move in trends. Once a trend starts, it is likely to continue. Traders make profits by recognizing a trend early, buying a stock for the duration of the trend, and selling as soon as it has run its course. Both position and swing trading are based on trend following; the difference is in the trend’s duration.
Position traders will look at longer-term analyses such as the 200-day moving average to identify the primary trend. Swing traders might look at the 50-day average and day traders look at the 10-day average or even hourly moving averages.
Whereas day traders can set aside fundamentals, position traders typically start their selection process using fundamental analysis. They then turn to technical analysis to identify proper buy points, potential targets, and stop-loss levels.