What is Position Trading in Stocks?

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Position trading is the longest-term strategy where stock positions are held for anywhere from a few days to several years. A stock position trader buys and holds stocks for a long time, expecting their value to significantly grow over time.

Positional trading can be a great way to trade stock without putting in the same effort and time required in scalp and day trading. Here, we’ll cover the basics of the position trading strategy and help you figure out what positions are in stocks.

How Does Position Trading Work?

Position traders ignore short-term price movements in favor of profiting from price movements over several weeks, months, and even years. Among all trading styles, position traders hold their positions for the longest time with the intention to capture a significant price move in stock prices.

Moreover, unlike short-term trading strategies, position traders focus on the long-term performance of an asset. These traders know that fundamental analysis is the dominant factor when analyzing financial markets, and they, therefore, make their trading decisions based on them.

To do so, they usually analyze the company’s growth over the long term and search for stocks that have either resilience business operations (defensive stocks) or stocks that are expected to grow in the near future (growth stocks). As stocks are more likely to be affected by fundamentals, position trading is generally more widely used in the stock markets than in the forex markets.

At the same time, even though fundamental analysis is used for long-term investments, many traders also use technical analysis tools and positional trading indicators to find good entry and exit levels. For that matter, position traders, unlike day and swing traders, typically use weekly or monthly charts to find entry and exit levels.

They also often use crucial support and resistance levels and the Fibonacci retracement trading strategy to find long market movements when the stock price breaks a certain level and indicates the beginning of a long-term trend.

Position Trading Strategy – Larger Gains Over a Longer Time

Essentially, position trading is the opposite of scalp and day trading, wherein emotions and technical skills play an essential role. Their goal is to capture a big move and make a huge return by holding a stock for a long period of time. It’s usually the type of investment that made a fortune for some of the world’s richest traders.  

The benefit of being a position trader is that you ignore small short-term market fluctuations unless they impact the long-term intrinsic value and the overall outlook of the company in which you hold its stocks. As such, you do not have to monitor your screen every day, or constantly analyze your position trades and the stock market in general.

Instead, position traders follow the status of the economy and the stock market and any relevant information about the particular company. Moreover, much like the swing trading strategy, position trading does not require much time and effort. In that sense, combining this trading strategy with other activities (like a full-time job) is possible. 

Normally, most position traders do in-depth stock research, buy one or several different stocks, and create a portfolio. From that point, a position trader must be patient, identify the correct exit levels, and have an investment plan to control the risks in holding positions and effectively manage the portfolio. 

Sounds easy, right? Well, it’s not. Becoming a successful position trader requires patience and understanding of the market. You need to know how to choose the right stocks and patiently wait until these stocks make a big move. When trading positions, you might wait for months or years until you see profits, or it could never happen. Moreover, you need to develop a risk management strategy to cut losses if needed and learn how to extend profits when you have profitable trades.

But with all the drawbacks, position trading is a great way to grow your wealth even if you are busy. So, what do you think? Can you become a good position trader? Let’s see some of the pros and cons of position trading first.

Position Trading Strategy – Pros and Cons

You might be a position stock trader if

  • You are super patient and calm (hats down to you, my friend).
  • You have a great understanding of fundamentals and know how they affect stock prices in the long run.
  • You don’t mind waiting for your grand reward.

You might not be a position stock trader if

  • You like seeing your results fast.
  • You don’t have a good understanding of how fundamentals affect the markets in the long run.
  • You don’t have enough starting capital.

The Bottom Line

In conclusion, position trading seeks lucrative returns over a long period. The goal of position trading strategies is to identify long and profound trends in the prices of stocks, which can continue for relatively long periods, and earn profits from such trends. Unlike intraday trading strategies, position traders struggle in a sideways market.

Remember, holding a position for a long period of time means you have to pay high commissions, which certainly increases the risks involved as well. So, you must make significant gains to cover the costs (and the headache) of holding a position for several weeks, months, or years.

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