What Is a Position Trader?
Let me explain what a position trader is. You buy an investment for the long term, expecting it to increase in value. As a position trader, you're not worried about short-term price swings or daily news unless they change your overall view of the investment.
You can think of position traders as the opposite of day traders. We don't trade actively; most of us make fewer than 10 trades in a year.
Understanding the Position Trader
By definition, position traders like me are trend followers. Our main belief is that once a trend begins, it's likely to keep going for a while.
We spot a trend and an investment that will gain from it, then buy and hold until the trend reaches its peak. The key to success is figuring out the right entry and exit prices ahead of time and managing risk with stop-loss orders.
There's a difference between position traders and buy-and-hold investors, who are passive and hold positions even longer, often for goals like retirement. As a position trader, I've identified a trend, bought based on it, and I'm waiting for the peak to sell.
This approach aims to capture most of a trend's upward movement. It's the complete opposite of day trading, which profits from short-term changes. Swing traders fall in between, holding for weeks or months expecting a quick price jump.
Key Takeaways
- Position traders are trend followers.
- They identify a trend and an investment that will benefit from it, then buy and hold the investment until the trend peaks.
- The successful position trader identifies the right entry and exit prices in advance and controls risk using stop-loss orders.
Tactics for Position Traders
To succeed, you need to pinpoint the right entry and exit prices for the asset and have a risk control plan, typically through a stop-loss level.
Remember, a day trader buys and sells in hours or minutes, a position trader buys and holds until a trend peaks, and a buy-and-hold investor buys for the long term.
You might use technical analysis, fundamental analysis, or both to decide on trades. We also consider macroeconomic factors, general market trends, and historical patterns to pick investments set to rise.
One major plus of position trading is it doesn't require much time. Once you've started a trade and set up protections, you just wait for the result.
The primary risk is that small fluctuations you ignore could become full trend reversals. Another issue is tying up your money for a long time, which might mean missing other opportunities.
Is Position Trading for You?
You have to match your trading style to your personal goals, and every style has its advantages and drawbacks.
First, think about why you're investing. Are you saving for the future? Planning to trade for a living? Or just enjoying the market and wanting to own part of a company? How much time do you want to spend tracking your portfolio each day or week?
Position trading works best in a bull market with a strong trend. It doesn't fit well in a bear market. In a flat, sideways market that's just fluctuating, day trading might be better.
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