WHAT IS POSITION TRADING AND HOW TO EXECUTE IT
position trading
This approach entails holding positions in securities for an extended period, usually from several l months to years or even decades. The objective of position trading is to profit from major trends in the market rather than short term price movements. Position trading is less active than scalping, day trading and swing trading. Institutions typically allocate a portion of their trading book to this approach.
Generally position traders use fundamental analysis to identify securities that are undervalued or overvalued and hold these positions for the long term, waiting for the market to correct itself. Position traders may also use technical analysis to identify optimal entry and exit points
Pros
- Position trading can offer higher potential gains than the other active trading strategies as traders aim to profit from long term price movements
- There are fewer transaction costs due to the infrequency of trading
- Position traders can be more flexible in their trading strategy as they can adjust their positions as market conditions change
- With this approach there is more time to analyze market trends and make informed trading decisions, reducing the risk of emotional trades
Cons
- Position traders may be exposed to sudden market events that can cause large price movements
- This approach may limit the traders ability to take advantage of short term market opportunities
- Holding positions for an extended period can limit the trader’s liquidity, making it difficult to add new positions
- Position traders must have a solid risk management plan to manage their positions and limit their exposure to market risk
