Position Traders – Concept, Approaches, Benefits, Risks, Differentiate & more
Generally, we can put together four distinct styles of traders – Day Traders, Scalpers, Swing Traders, and Position Traders.
For this Article, however, we will be focusing exclusively on the financial traders who believe in Position Trading.
There is no denying that trading financial assets involve a ton of risks. So, it is not unexpected that most traders have a difference of opinion while trading.
Now, there should be a bigger question – whom can we call a Position Trader? How can we differentiate one from the other traders who follow another style?
In this article, we will dive deep into this segment and let you know every intricate detail of being a Position Trader.
We will also answer a few more questions as we continue to progress. Now, let us jump in!
Understanding Position Traders
While we trade financial assets, everybody has a style of how they operate. So, people who believe in the concept of Position Trading, are in fact the Position Traders.
Now, one obvious question is what Position Trading is? By definition, it is a style of trading financial assets where the traders hold positions to gain maximum profits.
Usually, these deals are a minimum of 3 years. So, in other words, Position Traders invest long term, usually 3-5 years, sometimes more, with an expectation that the price would increase high in future.
Meanwhile, the companies, most of the time provide dividends to the asset-holders for keeping the faith in them.
There are some other additional benefits which we will discuss later. We will also talk about the risks involved while being a Position Trader later in this article.
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How can we Differentiate Position Traders with others?
All the trading styles are quite distinct from one another.
Yes, there is some form of similarities between Day Traders and Scalpers as the tenure for both are for one day, but other than that, every trading style has its unique features.
Now, let us start with comparing all the other trading styles with Position Traders:
Position Traders vs Day Traders
When comparing Position Traders with the Day Traders, the first thing that most would notice is the tenure of holding period.
Day Traders earn profits based on how much the market fluctuates in a day, whereas the Position Traders anticipate the market trend and invest in an asset on a long-term basis.
So, you can say, Position Traders, are quite the opposite-minded people when compared to the Day Traders.
Position Traders vs Scalpers
The Scalpers are traders who scavenge small bits of profits and aggregate that at the end of the day.
In contrast, Position Trading is hugely distinct from Scalping as the main factor, just like Day Trading, is again the one-day tenure.
A Scalper needs to use every tool and charts to create a daily plan to reach the potential target they desire every day.
Whereas the Position Traders don’t bother about daily chart monitoring as they are focused in long-term.
Position Traders vs Swing Traders
Swing Traders are the ultimate casual traders who are into trading but doesn’t fully commit to it. However, the trading tenure is not limited to one day.
Neither they have the patience for 3-5 year of investment strategies, and that is what differentiates them from any Position Trader.
Where the focus of a Position Trader is to invest money and hold it for a certain period, a Swing Trader’s motive is to earn short term profits.
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What Approaches should a Position Trader take?
We would like to make one thing very clear – it is not easy to become a successful Position Trader.
Yes, they don’t need to bother about everyday market fluctuations, but the risks they have already taken are far more significant.
So, to be a successful Position Trader, there are two primary approaches that you should take:
The Fundamental Analysis deals with the information related to the company’s asset you are considering to buy.
Now, there are tons of data that you need to collect as there are several aspects which result in an upward or downward trend of any particular asset.
Any piece of company news is pivotal. For example, a change of the company CEO can massively impact the asset’s price to move.
Similar, new product launches, negative customer reviews, change in customers preference, new competitor inclusion, and various other factors can change the dynamics of the company’s asset price.
So, it is crucial to monitor the fundamentals of the company minutely before investing.
The other aspect that you should consider checking is the Technical analysis of any particular asset.
It is the charts monitoring schedule which will ultimately give you the proper trend-prediction report.
You need to check the stats from the inception of the assets to know how well it has performed over the years.
How many adverse situations the asset had to withstand to be where it is now? You should be aware of these questions.
Now, there are several tools and calculators which would give you the prompt reports. Once you are fully satisfied, only then you should start investing.
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Why should you Become a Position Trader?
There are several appeals to become a Position Trader. Now, we would discuss this in the following points:
Burden Free Trading
One of the first benefits of being a Position Trader is the burden-free trading that all the other forms of traders do experience.
Of course, that doesn’t mean that the Position Traders are worry-less, but they don’t have to deal with everyday market fluctuations as they trade long-term.
The company whose assets you have purchased, more often than not, provide dividends that you can enjoy prior to the profit you may earn if you sell the assets.
You will not get dividends if you prefer either one style from Day Trading, Scalping, and Swing Trading as all of them are short-term investments.
Some Position Traders also involve the investment in assets as a part of the retirement plan.
Of course, you will need to plan it correct as everything must fall in line, but there are tons of traders who are safeguarding their post-retirement life with lumpsum returns.
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What are the Risks Involved in Position Trading?
As mentioned before, there are huge risk involvements when you try to perform Position Trading. So, we are articulated a few cons of such trading:
- The general idea is to invest a lot of money upfront. So, in technical terms, the capital investments for most Position Trades are significantly higher than all the other forms of trading.
- Another drawback that is directly related to capital investment is low liquidity. That simply means the fund that you have invested will get locked for 3-5 years.
- There is always a chance that you can incur a significant amount of loss if your predictions end up being wrong. The amount is far more than any other trading styles.
Position Traders – Conclusion
Position Trading is one of the most reliable trading styles. Unfortunately, you got to have a lot of experience and plenty of patience to invest in being a successful Position Trader.
However, if you harness the way, you can eventually become a true investor.
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