Forex trading allows for various strategies to be employed. Position trading is a strategy of great appeal and could be the method you’ve been looking for. Here are some tips and advice.
Insurance Edge magazine is not a financial advisor, please seek professional advice before making investment decisions.
Position Trading for Forex Users
The forex market is many things all at once. How else can one explain $5 trillion dollars in daily trades? Volatility comes with the territory but it would be a mistake to assume that it’s rife, and this plays into position trading. Quite simply put, there are forex traders who trade quite differently, who are in it for the long haul. These traders are known as position traders and also as “buy and hold” traders. What this means is that these traders choose positions for the long term, electing to make key decisions based on charts and macroeconomics.
Why is position trading so appealing?
When a trader elects to go the position trading route, the expectation is that there will be a major trend – be it in a currency pair, an index or a commodity. This type of trading is all about long term financial aspirations. Traders who partake in this type of trading aren’t concerned with price fluctuations or pullbacks – these are deemed minor things. Instead, the key goal is the acquirement of majority of the trend by way of trends that can run from anything between a few days to even a few years. Right about now you might be wondering what makes it appealing? Where’s the action? The appeal of position trading lies in the amount of time it takes out of your day – which is very little. The only time that’s required is for the initial research.
Once that’s done, the trader chooses a commodity or currency pair and enters the trade, after which there’s little else to do, except for occasional monitoring. Due to the fact that small fluctuations are of little consequence, maintenance and monitoring is nominal. Position traders make only a few trades over the course of a year – as mentioned – it’s the long haul in hopes of the big prize.
Major indicators in position trading
Day trading can be quite an all-encompassing process, even with the aid of automated trading software – which typically requires that one key in certain parameters before allowing the software to trade on one’s behalf. When it comes to position trading, traders are less reliant on technicalities and more tuned into external indicators such as unemployment rates, inflation, political climates and global news and events – all factors that can impact upon currency values over long periods of time. When using indicators to assess the outcome of a currency pair, it’s important to look at historical data and view the movement within a larger context. The need to have accurate data available for shares trading is all bundled up in the initial research, which is done before the trade is entered.
Searching for trade positions
There are various approaches that one take when it comes to position trading, thus making it an applicable practice to traders of all skill levels. Such approaches include and are not limited to the purchasing of commodities with strong potential before they start trending and buying assets that are already trending – this would be akin to purchasing blue chip stocks – stocks of companies with proven track records. Trading in or buying an asset that’s already trending requires less research as its growth is already a clear indicator of its potential, however, profits could be less as one would have missed the IPO. The key to successful position trading is finding the right trend and this often means shying away from assets that trade within a range, as this is unlikely to lead to sizeable returns. However, if the range spans years, then it can be conducive to the trader as long timelines are what one would be working with. Some assets have been known to experience upward trends for months.
Using a basic strategy
One of the benefits and at the same time challenges of trading, is that it does require strategy. There are risks in this game, but at least they’re calculated risks. Thus it is important to adopt a basic strategy when partaking in position trading, defined by three key steps.
· A preplanned entry
· A preplanned exit
· A controlled level of risk
Failure to adhere to these three rules could see your position trading endeavours ending poorly or with questionable results. When placing the trade, make sure that there’s a stop-loss to avoid major losses should a sudden shift in the wrong direction occur.
Position trade limitations
Like any method pursued in the world of finance, there is no perfect solution, and position trading is not without its limitations. For instance, minor fluctuations that are overlooked can snowball and result in major losses. Thus, while position trading lends itself to less vigilance, it still needs the attention of the trader. Always make sure there’s a stop-loss in place to protect your capital – the protection thereof is important because you need to be sure that you won’t need it in the meantime as success is measured in months and years.
At the end of the day, position trading is the ‘slow and steady wins the day’ take on forex trading, but like any strategy in this complex world of finance, has its advantages and disadvantages.