What’s up Traders, in this article, we’re going to be talking about Position Trading Strategies (Long-Term Forex and CFD Stock Trading)
In the following minutes I want to discuss the basics of the position trading, the advantages of adopting this trading style and we will also see 3 position trading strategies you could implement right away.
Position trading is a trading technique which looks at the bigger picture of the market, usually involving a combination of technical analysis and fundamental analysis.
When evaluating the markets, position traders usually make their research on weekly and monthly price charts. I’m sure you already know that 95% of all traders lose money and only 5% of them make any real money.
This is due to the fact that the majority of traders enter the markets with a “get rich quick” mentality. Short-term trading can be profitable, but on the long run you’ll be safer when adopting a position trading attitude.
Position Trading Eliminates Market Noise
When executed correctly, position trading comes with several advantages: The most important advantage of the position trading eliminates market noise.
Sometimes when trading on shorter time frames you get caught up in the market price fluctuations, rumors or the constant monitoring of the market. That’s market noise.
Position Trading Extracts the correct information from the Price
Position trading on higher time frames will help you to remove the market noise and to extract the correct information from the price.
Position Trading is more flexible
Another advantage is the flexibility while day traders monitor the price action very closely and their “screen time” is considerably higher, position traders don’t have to deal with such problems.
Position trading offers time away from charts. Also, position traders execute fewer trades and they don’t have to monitor the trades all the time.
Another advantage of the position trading is that you don’t over trade, Position trading keeps you away from the daily “temptations” of entering and exiting the market many times thought the day.
Position traders do not trade actively and execute fewer trades. Also, position traders don’t have to deal with the daily stress arising from trading, that’s because their positions have plenty of room to survive the market volatility.
Signals are more relevant on higher Timeframes
- Better Signals in higher Timeframes
Another important advantage of position trading is the fact that signals are more relevant on higher time frames Position traders often use the daily, weekly and monthly charts.
They are not interested in analyzing lower time frames. This adds weight to their trading systems. A divergence is much stronger on the weekly chart than on a 15-minute chart.
A moving average crossover has more relevance on the daily chart than on the 5-minute chart.
Better Signals in higher Timeframes
By using higher time frames position traders improve the quality of their trades. Now that we discussed the advantages of position trading, let’s see a couple of strategies used by position traders.
Divergence Trading on W1/M1 charts
An efficient position trading strategy is divergence trading on the weekly/monthly charts. Divergences are more reliable on higher time frames because the market does not move as fast and it is easier to define trends.
By trading divergences, the position traders see the patterns developing and have time to make the correct decisions.
In this weekly gold chart, we spotted an excellent hidden divergence opportunity. The gold price recorded a strong upward trend and retraced to the 23.6 Fibonacci retracement level. During this time, a hidden divergence pattern developed on the stochastic oscillator.
This represented a perfect buy for a position trader, the gold price continuing its upward trend.
A similar pattern is seen in this aussie dollar weekly chart. After 4 months of price increases, the market retraced to 38.2 fib level. The stochastic indicator showed a hidden divergence around that area, representing a good buy opportunity for a position trader.
The price indeed rejected that area and continued its upward trend for the rest of the year. On the Apple stock chart, we found this pattern once again.
The Apple price was in a strong upward trend on the weekly chart. The price retraced to 38.2 fib level. This move, combined with the hidden divergence on the stochastic oscillator represented a great opportunity for a position trader.
As you can observe from these examples, the hidden divergences represent a reliable tool for position traders on the higher time frames, generating high probability signals.
- Profit from the difference in interest rates
- Positive Swap
Another viable strategy for a position trader is the carry trade. The carry trade is an interesting forex long-term strategy that is based on the difference in interest rates around the world.
Profit from the difference in interest rates
It’s a strategy through which a position trader sells a certain currency with a low-interest rate and uses the funds to buy a currency with higher interest rate.
By executing a carry trade, the position trader intends to generate profit from the difference in interest rates between two countries.
Also, with an appropriate approach, the position trader aims to benefit not only from the difference in interest rates but also from the changes in the exchange rate.
Here’s an example, the Aussie dollar/Japanese yen on the monthly timeframe. That’s a good carry trade opportunity because there is a big difference between interest rates of the 2 countries, so we could make a profit in the long term from the swap.
After we determined the main monthly relevant support and resistance and potential price patterns we identified a possible long position in the direction of the prevailing upward trend, after the price rejected the 38.2 fib level.
A long entry on the currency pair would be a safe entry, considering the long term. The long position on the instrument is related to a positive swap, and thus the profit of such a transaction would be even greater if the currency pair will continue to move upwards.
- Identifying and confirming S/R Levels
- Crossovers works well only in trending Markets
Another position trading strategy involves moving averages. The moving averages are probably the most well-known and heavily used indicators in technical analysis because they effectively captures the trend of a financial market in an easily identifiable manner.
Identifying and confirming S/R Levels
Position traders often use moving averages for identifying and confirming support and resistance levels.
A crossover between 2 moving average is probably one of the most well-known technical analysis signal used by traders.
The strategy is simple, position traders trade moving averages, one with a shorter period and the other with a longer period and track the signals when a crossover occurs.
This is the simplest position trading strategy because moving average crossovers on higher timeframes work better than short-term crossovers. This is likely because they produce fewer false signals.
Crossovers works well only in trending Markets
However, be careful with moving average crossovers, because this strategy works only in trending markets. When the market is in a range, you’ll probably see something similar on your charts.
Position Trading is a safer alternative
Despite the fact that position trading is a long-term strategy and takes some time to profit from markets, it’s a safer alternative compared to the other strategies in the market.
Used it in conjunction with the long-term trend and with a proper money management system, the position trading might bring back the enjoyment of trading, without having to spend all day in front of the computer.
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