I was asked the question “What criteria is important with position trading?” by a recent site visitor. To my mind most of the same criteria applicable to shorter-term trading applies to the longer-term variety (I generally define position trading as holding positions for weeks to months and longer). One needs to have a well conceived trading plan that includes a trading strategy (system/method/etc.) which has been tested out sufficiently for the trader to be comfortable with its operation and expected performance. This is the same for all traders, regardless of timeframe.
Position traders, though, can delve more into fundamental analysis and trading than can the short-term folks. Fundamentals move too slowly to really feature heavily in short-term trading, making that mainly a technical (or news driven) venture. That means those operating on a position basis have a wider scope of analytic and trade analysis tools, because technicals can certainly be applied in that timeframe as well.
Position traders generally can also trade a wider array of markets and/or instruments. The standard rule is that the more short-term you trade the fewer things you can trade because of how much focus each one requires. Position traders don’t have to be that intensely focused, so they can incorporate many different things into their trading. In fact, they often have to do exactly that in order to generate sufficient numbers of trade opportunitites to make it worthwhile.
Now, the thing that often trips up or worries folks about position trading is the fact that one needs to allow for wider price swings. That means more points/pips/ticks at risk. This doesn’t necessarily mean taking more risk, though it would mean generally taking smaller positions to have the same risk level as a trade with fewer points risked. For those with low capitalization it might make position trading difficult or impossible to do without risking too large a portion of their portfolio. As such, small traders would only be able to position trade where the unit sizes available to them were sufficiently small.
Position trading can be very rewarding, but takes the right kind of mindset. It is not an active trading style since positions are generally only taken infrequently and don’t require much monitoring. I like this style a great deal because I generally have a lot of things going on, making it difficult for me to maintain a short-term focus consistently.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
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