Position traders in forex are long term traders that hold positions for several weeks and months.
The Position traders in forex never focus on small price fluctuations or pullbacks. Instead they want to capture a large trend, which can last for months or years.
In contrast to swing trading, position trading is the longest term of trading. Trades can last for weeks, months or even years.
You will need a clear understanding on the behavior of different economic indicators and the extent on how such factors affect the country’s economy and its future state.
Understanding fundamentals is a key for position traders in forex.
Position trading requires traders and investors to capitalize on long term trends through entering and hold trade positions for a long term.
Therefore, this kind of trading requires a large trading account to cater for bigger stop and margins. Also, you have to be a very patient person to hold the account for that long.
Advantages of position trading
One of the main advantages of position trading is that it’s a hands off approach.
After taking a trade, the only task left is to monitor the trades periodically .
The amount of time needed for position trading is limited, much less than a day trading or scalping.
Position trading also greatly reduces the impact of market noise.
This is because trade management parameters associated with larger time frames are able to withstand pressure created by short-term volatility.
This short term volatility usually cause premature stopping out on winning trades when using short term approaches like day trading.
Position Trading is for You if,
- You are extremely patient and you like to take things slow.
- When you have a great understanding of fundamentals and have good foresight on how they affect your currency pair in the long run.
- You are not bothered to see a large loss on your account.
- You have enough capital to withstand several draws if the market goes against you
- If you can let your trades run without you intervening. You don’t mind waiting for long.
- You have a busy working schedule that you literally have no time for daily charts.
Common strategies for position traders in forex
Position traders in forex are mainly trend followers.
They believe once a trend has started, it will last for a while before changing direction.
This makes trend trending the commonest trading style among the traders. They trade following the main trend direction.
Trending markets, prices move strongly in one general direction for a specific period of time.
In trending markets, traders use the trend following indicators such as moving averages to identify the main trend.
Take a look at the Chart below.
200 SMA crossed the price. Price stayed under the Moving average indicating Strong Downtrend.
Wait for Trendline breakout as price gets to the 50 Simple Moving Average Resistance for entry. These small congestions are continuation of the main trend
While fundamental analysis plays a much larger role for position traders, It seems fundamental alone is not enough.
To carry on position trading you needs both fundamental and technical analysis.
Trend Reversal Trading
However strong a trend may seem, at a certain point it will reverse/change direction. And when it does, you can take that opportunity and grab some profits.
When a trend is about to end, it is always followed by a change in price momentum. Occasionally, you are likely to see double tops and bottoms signaling trend exhaustion.
In trend reversals, you sell when prices are high and buy when prices are low.
Take a look at the Chart below.
Double Top reversal on Daily Chart
Price Breakout Trading
A breakout can either signal a new trend starting or initial trend continuation.
A breakout is where the price moves outside defined support or resistance levels.
With breakouts trading, you buy after the price breaks above resistance or sell when the price breaks below support.
Take a look at the weekly Chart below.
Break of the channel confirms the Sell signal
Support and resistance may always appear as trend lines, channels or on reversal pattern.
How long you can hold an open position in forex, is a personal thing for all traders. The decision is all yours. You know what your goals are as a trader, the kind of strategy you use to trade. All this starts from what you are? and What you want? If I am to answer,...
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