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Position Trading: what is it and how does it work?

ByDave Stopher

Aug 17, 2022

In order to execute the most successful trades, you need to ensure you’re fully equipped with an understanding of various trading strategies.

Trading is a complex process that requires focus, skill, and preparation, and how you adapt your strategies with each trade can be pivotal to the overall success of your trading experience.

Whether you’re conducting traditional trading on the stock market, or purchasing contracts for difference (CFDs) on the foreign exchange (forex), strategy is key, for every trade style and market.

Among the many strategies you could incorporate into your trading, one of the most widely used across various markets globally, is position trading.

In this article, you will receive an in-depth guide into what position trading is and how it works, so you have another strategy to add to your trading arsenal.

What is position trading?

Position trading is a strategy that involves traders holding open positions on fewer assets, for a long period of time.

This trading strategy aims to produce profits from long-term investments, where the persistent attention on fewer assets leads to large returns in the long run.

Asset values on a market – such as currency pairs when position trading on forex – can often allude to a particular direction of movement that will last over a long period.

When you position trade on these assets, you can hitch your position to the asset’s movement, and ride it either up or down to a final price value that produces a sufficient profit.

Position trading can be incorporated into any trading style or market, it all comes down to how well you conduct your market analysis, and the appropriate time you choose to open and close the position.

How does it work?

For a clearer understanding of how position trading works, here’s a step-by-step guide for how you would execute a position trade on the forex market.

  1. Choose your trading platform

The first thing to do when executing trades of any form, is to choose the right trading platform.

This will be the heart and soul of your entire trading journey, where all the analysis, execution, and management of your trades takes place.

Only an expert trading platform will provide you with all the tools necessary to implement your strategy in the most successful way possible, and increase your chances of profit.

  1. Determine your market

Once you’re on your platform, you now need to establish the market you wish to trade in.

Again, your chosen platform will be crucial in this process, as different platforms will allow you access to different varieties of markets and instruments.

The best platforms will have the widest range available.

As mentioned above, we’ll assume you choose to trade CFDs on the forex market.

  1. Conduct technical analysis

The next part is vital, as this is where you’ll be able to narrow down the asset you want to trade, and the appropriate time to do it.

Technical analysis will help you analyse the performance of the forex market, including any trends or patterns present, and the likely movement of assets.

When position trading, you want to look for assets which indicate a certain, strong movement that will last over a long period.

Once you’ve identified this asset, you can decide the most appropriate time to open the position, based on the performance and predicted movement shown by your analysis.

  1. Open your trade position

This is where you’ll execute your trade.

With CFDs, you don’t own the underlying asset, but instead you purchase a number of contracts on the asset that speculate the price value’s movement.

Depending on what your analysis revealed, you will either open a long (buy) or short (sell) position, that predicts the value will continue to move up or down.

The more accurate your speculation, the higher your chances of profit, so this step is crucial.

Once your position is open, continue to monitor and evaluate its performance from your platform.

  1. Closing time

This is potentially the most important part, since when you decide to close your position will determine the success of your trade.

Many position traders can hold their positions for months or even years, so deciding when to close can be tricky.

This is why analysis is key, since it will help you spot the appropriate time to close your position – i.e., when the asset’s value has reached its final point as far up or down from when you first opened the position.

Do remember that position trading is a long game, and although it can be easy to panic and close as soon as the value dips or spikes in an unfavourable manner, make sure you trust the analysis to see if this change is possibly momentary.

Finally, when you deem it fit, close your position and collect your returns, which should be highly profitable if you’ve executed your position trading strategy effectively.