Position trading is a longer-term trading approach where you can hold trades for weeks or even months.
The timeframes you’ll trade on are usually the Daily or Weekly.
As a position trader, you mainly rely on fundamental analysis in your trading (like NFP, GDP, Retail sales, and etc.) to give a bias.
Also, you might use technical analysis to better time your entries.
Let’s say:
You analyze the fundamentals of EUR/USD and determine it’s bullish. But, you don’t want to go long at any price.
So, you wait for EUR/USD to come to Support before taking your position.
Now if your analysis is correct, you could enter at the start of a new trend before anyone else.
An example:
Now, let’s discuss the pros and cons of position trading…
The pros:
- Don’t need to spend much time trading because your trades are longer-term
- Less stress in your trading as you’re not concerned with the short-term price fluctuations
- A favorable risk to reward on your trades (possibly 1 to 5 or more)
The cons:
- Require a firm understanding of fundamentals driving the market
- Need a larger capital base because your stop loss is wide
- May not make a profit every year because of the low number of trades
And lastly…
There’s a trading strategy called Trend Following (which is similar to position trading).
The only difference is Trend Following is purely a technical approach that doesn’t use any fundamentals.