Position
Trading
What
is position trading?
It
is a trading approach that aims to profit from the medium to long
term trends in the financial markets. Moreover, it is a prolonged
swing trading that goes beyond the medium term. A typical position
trade can
remain in place for a quarter or year. Though it is a type of
investments, it does not last more than
a
core investing. Note that a typical investment may last for four
years or more.
Position
Trading Masters
Amongst
those
masters are the hedge
funds,
big financial institutions (banks) and private professional
traders.
That
group is also subdivided
into two:
1/
Technical position traders
who use advanced
technical trading tools such as
a/
Fibonacci,
b/
Elliott wave principle market forecast,
c/
the surge in trading volume,
d/
predictive fractal patterns,
e/
and other proprietary trading systems.
2/
Fundamental traders
Really,
a position trader is a fundamental traders. He or she does not
primarily rely on technical indicators such as MACD, stochastic, RSI,
price patterns or the advanced technical trading tools like
the technical position traders.
Instead,
fundamental traders use the fundamentals such as the balance sheet,
financials, economic news, market sentiment, market indicators,
geopolitical
factors and the central banks' policies to put in place a resilient
position trading strategy.
Position
Trading Example One
It
is
about how to position trade as
a
technical trader. Indeed a technical position trader often uses three
time frames:
1/
the quarterly chart (for the trading set-up)
2/
three-day chart (for the trading signal)
3/
and the three-hour chart for the trade entry.
Note
that others technical traders also use the same method with the
following time frames:
Quarterly,
weekly and four-hour charts or
quarterly,
three-day and four-hour charts.
As
a professional position trader, one will validate the quarterly
technical trading set-up
on the yearly chart before waiting for clear cut trading signals on
the weekly
chart.
Position
Trading Example Two
It
is about how to position trade using the fundamentals.
After
the bearish financial crisis of 2008, the US
Federal Reserve began a never seen before devaluation of the US.
Dollar
at
the start of 2009 (quantitative easing or low interest monetary
policy). Consequently,
US
wealth managers transferred funds into other favourable
parts in
the world (Brazil, Switzerland, Japan and China). They also bought
commodities (such as gold and silver) and US
blue chip stocks.
Moreover, smart position traders who spotted the bullish money flow in those
sector timely took positions
accordingly
by
a/
buying commodities,
b/
selling the US
Dollar,
c/
and
buying
US
stocks.
Note
that those position trades were very profitable as the long term
investors also took positions.
What
Does
It
Take
To
Become
A
Position
Trader?
One
does not become a competent position
trader by chance alone or by skipping the ultimate basics of a
professional position trading requirements such
as:
1/
Thorough understanding of how the financial markets work (outflows
and inflows of money in the markets).
2/
Thorough understanding of each group of financial
market
participants.
3/
Hands on grasp
of market cycles.
4/
In possession of large sum of money to survive the drawbacks in this
messy financial
markets.
5/
Ability to recognize overbought or oversold assets before it is too
late.
6/
A disciplined solid money management.
7/
A sharp competence in market timing without which one may be right
but lose.
8/
The ability to adopt a robust defensive position trading strategy or
hedging.
9/
Be humble to accept losses before they grow big.
10/
Being ready to harvest profit in due course without leaving too much
money on the table.
11/
Always using
a top-down trading method (for technical position trading).
12/
Be able to combine the technical analysis and fundamentals.
13/ Adopting the mindset of the professional position traders and deploying
the tools that they use in the financial markets.