Position Trader

Commodity Trading Advisor (CTA)

What is a Position Trader?

The position trader refers to a person who holds an investment for a long period of time in the hope that he will appreciate its value. Average times to fill positions can be measured in weeks or months. They are less concerned with short-term fluctuations and the news of the day, unless it affects the long-term view of their position. Position traders do not trade actively, most placing less than 10 trades per year.

Understanding position traders

Position traders are, by definition, trend followers. Their basic belief is that once a trend begins, it is likely to continue. Only long-term buying and holding investors, who are classified as passive investors, hold their positions for longer periods than traders.

Their trading philosophy aims to successfully capture most of the evolution of a trend, which would lead to an appreciation of their investment capital. As such, it is the polar opposite of day trading that seeks to profit from short-term market fluctuations. It also differs from swing trading in that, although both are based on the concept of trend following, position traders hold their positions for much longer periods than swing traders.

Position traders can use technical analysis, fundamental analysis or a combination of both to make trading decisions. They also use macroeconomic factors, general market trends and historical trends to select the investments that they believe will achieve the desired result. To be successful, a position trader must identify entry / exit levels and have a plan in place to control risk, usually via stop loss levels.

The main advantage of position trading is that there is not much demand over the trader’s time. Once the trade has been launched and the backups have been implemented, just wait for the desired result. The main risk is that the minor fluctuations they have chosen to ignore may, at times, turn into trend reversals, which can have a detrimental effect on their trading accounts. The other disadvantage is that, as their capital will be tied up for long periods of time, they could fall victim to opportunity costs.

Key points to remember

  • The position trader refers to a person who holds an investment for a long period of time in the hope that he will appreciate its value.
  • Position traders follow trends.
  • A successful position trader must identify entry / exit levels and have a plan in place to control risk, usually via stop-loss levels.

Is position trading for you?

All investors and traders need to match their trading style with their own personal goals, and each style has its pros and cons. The first consideration should be the reason why you are investing in the first place. Are you building a nest for the future? Are you planning to make a living? Or do you just like to dabble in the market based on your own research and want to own a business? And how much time do you want to spend each week or each day monitoring your portfolio?

You should also understand the type of market in place. Is this a trendy bull market? If this is the case, position trading is ideally suited. However, if it is a bear market, it is not. In addition, if the market is flat, moving sideways and squirming, day trading could have the advantage.

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