Position trading: Skilling's comprehensive guide + quiz
What is position trading?
If you want to trade and invest like a Wall Street hedge fund manager, you might be interested in position trading. Position trading is essentially the opposite of the fast-paced, high-risk environment of day trading.
With position trading, you are buying and holding a position with the expectation of capitalising on a long-term trend. You will buy with the expectation that an upward trend will continue over a long period of time and then sell a few months or years down the line.
When it comes to position trading vs swing trading, the main difference here is that swing trading usually means holding a position for a few days or weeks, while position trading operates in months and years.
Most position traders do not execute more than 10 trades in a single calendar year and tend to make very careful and well-researched decisions when it comes to selecting securities for position trading.
It is important to note that, although the time horizons are certainly long-term, position trading is not the same as a passive investment. Passive investors will make investment decisions that remain in place for decades in the hope of building, say, a retirement fund.
Meanwhile, position traders aim to capitalize on emerging trends in order to buy lower and sell higher a few months or years down the line. If you are wondering what position trading is exactly and the different types of position trading strategies available to you, read this essential guide to learn more.
Position trading tips for beginners
If you want to start position trading because you think it could be an effective way to boost your profitability and add a little bit of spice to your portfolio, we are here to help. Here are some essential position trading tips to keep in mind before you start:
- Always go with the flow. One mistake that many first-time position traders make is to try and buck a prevailing trend and go rogue. This might pay-off with day trading, but it will rarely work for position trading. Your best bet is to always follow the overall market trends.
- Real market data is essential. Whether you are position trading on CFDs or commodities, it is essential that you are using real-time market data to inform your purchase decisions. Always use a broker that utilizes real, expert market data and avoid any platform that touts shadow market data.
- Start small and cheap. The goal of position trading is to get in "early" on a prevailing trend. This is why you should be focusing on cheaper stocks, in order to maximize your potential profits and growth. You do not have to go as low as penny stocks, but it might be a good place to start.
- Position trading is for bull markets. Put simply, position traders will not gain much from being bearish. Long-term, upward market trends are a position trader's best friend, so save the shorting for your day trading.
- Hold your nerve. Being a successful position trader means being patient and being able to hold your nerve when slight dips occur in the market. Selling every time you get nervous or the markets have a bad day would make it very difficult for you to profit from position trading.
How to start position trading with a demo account
If you want to try out position trading in a risk-free environment using real market data but fake money, you should set up a Skilling Demo Account. This will allow you to experiment with different types of trading strategies and figure out the basics of position trading to see if it is right for you.
To set up a demo account, simply:
- Go to the Skilling website and click "sign up".
- Enter your account information, such as your email and password.
- Enter your account preferences and information on what your trading preferences are.
- Select "demo account" to start trading with fake money.
- You can switch to real money mode and finalize your account registration to begin real position trading.
Top position trading strategies
Position trading is one of the most popular forms of trading among experienced, institutional investors. It is therefore unsurprising that there is a large number of tried-and-tested position trading strategies that can help you identify the right trends, reduce risk, and maximize your potential gains. Here are some of the most popular position trading strategies.
The 50-Day Moving Average Significant long-term trends in markets are usually illustrated via 100 and 200-day moving averages. Since position trading involves getting in on an asset as early as possible, one common strategy is to look for moments when the 50-day MA intersects with a 100 or 200-day MA, which would indicate the beginning of a potential long-term growth trend.
Fundamental Analysis This is simply a form of position trading that involves incredibly in-depth analysis into each security before taking a position. Since you only tend to position trade with a few assets a year, this gives you the time to conduct serious research into the pricing, averages, trends, market factors, and upcoming events that could affect market sentiment.
Breakout Trading This simply describes an effort to occupy a position in the very earliest stages of a trend. When performing breakout trading, you will either open a long position when a stock price rises above the resistance level or open a short position when the reverse is true. Identifying these resistance phases is crucial for success.
1.Which securities are best for position trading?
Typically, you should avoid position trading with Forex or with large, blue-chip stocks. Instead, focus on cheap stocks that could be about to take off.
2.How do I minimise risk when position trading?
There are many ways to reduce risk when position trading. Taking positions in a diverse array of sectors and stocks is a good start. You should also have a rigid stop-loss in place in order to shore up profits and protect against significant losses.
Not investment advice. Past performance does not guarantee or predict future performance.