Position Trading – Concept, Comparative Study, Strategies, Benefits & more
In this article, we will talk exclusively about Position Trading. After explaining the core concept, we will do a comparative study between all the trading styles available.
We will also raise the point of whether you should choose the Position Trading concept or not. Alongside that, we will discuss the pros and cons of being a Position Trader.
Additionally, we will share some of the popular trading strategies involving Position Trading as well. So, let us discuss now!
When it comes to financial asset trading, there are no fixed protocols that you can follow to achieve success.
Instead, the fact that most traders do have a distinct trading style makes the process more exciting and diversified.
Now, there are four conventional trading styles available today – Day Trading, Scalping, Swing Trading, and Position Trading.
Of course, you can implement multiple styles while you trade or can be flexible in shifting from one to another. But the core concept will somehow revolve around these four trading styles.
About Position Trading
Let us explore Position Trading a bit before we can do a comparative study. Primarily, it follows the market trend of a particular asset and expects a rise in price over a long period.
Of course, like all the other trading styles, Position Trading is also a perception that a trader interprets a trend.
The general belief is when they buy an asset, it will hold the price and then will continue to rise.
A Position trader is good at identifying the correct asset, which follows an upward market trend, and holds its price before it reaches a peak.
In other words, you got to be competent enough to guess the correct entry and exit prices beforehand. At the same time, you should know how to control the risk factor by putting a stop-loss.
A Position trader also emphasizes on fundamental and technical analysis for making flexible trading decisions.
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Comparative Study between all Trading Styles
There are four preliminary trading styles – Day Trading, Scalping, Swing Trading, and Position Trading. So, check out the points down below:
Position Trading vs Day Trading
For those who are unaware of Day Trading, it is a trading style where all the trading activities wrap up in a day.
They typically capitalize on the market price volatility to earn the maximum profit margins every time they trade.
On the other hand, a Position trader has nothing to do with the daily price fluctuations. They think and invest long-term.
The core idea of both Position and Day Trading is quite distinct from one another.
While the Day Traders believe in short term gains applicable for a day, the Position Traders treats them as long-term assets where they can earn dividends.
Position Trading vs Scalping
Scalping is yet another form of Intraday trading. However, there are significant differences between Day Trading and Scalping.
Now, the difference between a Scalper and Position trader is massive as well. The first thing is obvious – tenure.
While Position trading is usually for 3-5 years, a Scalper can trade hundreds of times to get the desired result from a single day’s trading.
The fundamentals of both trading styles are quite distinct from one another as well.
Where the Position traders overlook the market price fluctuations and believe the asset will hold the price long term, a Scalper prioritizes the aggregate value of every trade they do in a day.
Position Trading vs Swing Trading
While the Day traders and Scalpers are the most active participants of the market, Swing Traders are the least active of them all.
These are, as we called the “Casual Traders” who don’t invest a lot of time to do researches on assets before making a trade.
Now, in comparison to the Position Traders, again, the biggest difference is the tenure.
While the Swing traders don’t particularly deal in one-day trades like Scalpers or Day Traders, they take anything between 1 week to 1 year for trading.
Of course, there is a massive difference in core ideologies between the two trading styles.
While Position Traders invest money for long-term and believes it can yield a lot in future, Swing traders crave for the instant short-term profits a trader can make.
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Position Trading Strategies
To be clear, typical Position trade involves a lot of money and time. So, it makes sense to invest with proper strategies in position.
Therefore, take a look at these following popular strategies which you can also adopt:
When you are thinking a long-term investment, there are several factors that you need to consider before making a final call.
So, the first strategy that we are suggesting is to do the fundamental analysis of the company whose assets you are considering to buy.
Checking on the company status would give you a ton of insights about the company like the potential profit its stocks can make, how well is the company operations, and what are the future prospects of the company.
So, we are recommending to seek for the information related to CEO comments, financial records, SEC filings, earnings reports, and many more related data.
Additionally, you would also get an idea of whether or not the stock price is fair in the market. Overall, this is a strategy where you should always look for.
Please remember that the company issues assets for you to buy and sell. So, keeping a track of the company activities always makes sense.
Technical analysis is a strategy which applies to all trading styles. However, it is precisely important for Position Trading to determine the market trend.
Since there are not many activities related to trading after you buy an asset in Position Trading, technical analysis is pivotal.
Now, those who are wondering what technical analysis is, it is a part of making a thorough research of the assets’ performance since its inception.
The difference between a technical study of a Position trader to any other trader is this research tenure.
Meaning a Position trader typically needs to check on the entire chart to figure out the trend it had over the years.
Based on that, they can start predicting the future trend of that particular asset. So, you can, therefore, put a stop-loss if necessary, and guess the correct entry and exit points.
There are several tools and charts available in whichever trading platform you are using. You can also get additional paid information if you are unhappy with the one you have got.
Overall, these technical analyses would improve your knowledge not only on the assets you own but also the general market altogether.
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Benefits of Position Trading
Assuming you have a decent idea of what Position Trading is in comparison to other trading styles, let us now discuss about the benefits of this trading style:
- Holding an asset for a long time build a trust factor for you in the eyes of the company. So, that creates a scope where you can earn dividends when the company offers. Dividends are only available if you are a Position trader.
- Trading long-term also gives you buffing time to cope-up with any adverse situation. If in case, you need to put a stop-loss on your asset, you still have more time in Position Trading, in comparison to Day Trading or Scalping.
- Holding an asset long-term can also be a part of your pension plan. You can earn hefty profits and dividends at the time of your retirement. It can be on a monthly basis or can be a lumpsum amount.
Cons Of Position Trading
No trading style is risk-free, and Position Trading is not an exception either. So, check out the following drawbacks if you adopt this strategy:
- Every time the market follows a downward trend, no matter how much experienced a trader is, gets worried about the own assets’ price. The worry is whether or not the price again to the high jump and even so, would it reach the desired goal as you thought initially. So, even though this is a short time drawback, it is a con, to say the least.
- Usually, the Capital Investment for the Position trades is colossal in comparison to other trading styles. As there are no frequent trades in offering, the goal is to generate a maximum return at one go. So, if that one shot backfires, there is a lot to compensate.
- One other significant drawback of Position Trading is the amount that you invest will not be credited with a Compound interest. So, you earn what you will earn at the time you sell the assets.
- The lack of account liquidity can also be a factor in case a trader wishes to capitalize.
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Position Trading – Conclusion
So, if you ask the question – “should I do Position trades?” We will say yes to that considering you can compensate if in case you incur a loss and most importantly if you have got the patience.
If you can abide by these two rules, you should get success in Position Trading.
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