Position trading on the stock exchange. Positional and swing trading
Every trader tries to choose for himself the trading style that will bring maximum profit. What should be done? - Decide on your priorities, learn to wait and learn effective techniques. At the same time, there is a choice - there are many different types of trading on the stock exchange, one of which is position trading. The majority of speculators on the stock exchange prefer intraday trading. Why not? This is interesting and promising from the point of view of profitability, because several dozen transactions can be executed during the day. But beginners cannot always catch the moment of entering the market in a timely manner. Some traders miss out on profitable trades, while others close them during the sweetest period of the trend, fearing profit on corrections. As for positional trading, this implies a different approach. The main task is to follow the trend in order to squeeze the maximum result out of it. How do position traders work? This is what we will talk about in the article.
What's the point?
Let’s immediately define the features of positional trading. This type of trading, as many experts note, has common features with investing. But there is a difference - the trader does not waste time studying the fundamental indicators of the company. Often, a careful study of the chart is enough for him. The main task of a position trader is to hold a stock for as long as possible while it makes a profit. The period may vary - usually several days. As for fundamental analysis and its abandonment in positional trading, not everything is clear here. There are traders who actively use it in positional trading. Studying the general state of the economy, or at least the sector of interest, is the main task. In addition, non-technical information can be used in the analysis - it is on long-term charts. Thus, it is advisable to study monthly and weekly charts, where it is much easier to catch profitable market movements. You can use trend lines and, of course, proven indicators as assistants.
What is the difference?
If position trading involves holding a security for such a long period of time, then how is it different from regular investing? The difference lies in the work approaches. A fundamental investor focuses on studying balance sheets and financial ratios. Before buying shares, he will definitely read more than a dozen analyst reports and only after that will look at the price chart. If the selected stock shows a growth trend, then it is likely to be included in the investment portfolio. An investor will hold shares until fundamental indicators literally “scream” the need to sell securities. The signal may be a revaluation of shares, their achievement of a target price, or a general deterioration in the situation within the company. Thus, both position traders and investors use charts, but in different ways. What are the intricacies of a position trader’s work? As we have already mentioned, charts play a key role in positional trading. It is by studying the overall “picture” that a trader begins his work. To accurately select a stock, he conducts technical analysis. Once a preliminary decision to purchase a particular security has been made, a small fundamental analysis of the company's performance, for example, the price/earnings ratio, is possible. Such a simple check allows you to make sure that the company is doing well. What is a mini-conclusion? The investor applies fundamental principles in his calculations and only after that approaches the analysis of charts. A position trader does the opposite. First he studies charts, and only after that economic information. It is impossible to say that one method is better and another is worse. They are different and each of them has its own characteristics, pros and cons.
Features of the strategy
Positional trading is rightfully considered one of the most thoughtful. If the price stands still for some time or there is a slight movement in the sideways direction, then what is the point of “sitting” on the position. It is better to leave it and buy other securities. Positional trading strategies often use moving averages - EMA or SMA. It is believed that buying a stock is justified if the short-term moving average intersects with the long-term one. At the same time, the trader is confident that the price will continue to rise as long as the short-term EMA is above the long-term moving average. As soon as the curve goes in the opposite direction and crosses the long-term moving average, the current position can be closed and more promising options can be looked for. The disadvantage of positional trading is that the necessary signals do not arrive as often as one would like, and the trader himself works with a limited volume of securities. As for the features of the positional trading strategy, there are several main steps:
First, an analysis of a certain group of shares is carried out to select the most promising security;
Secondly, the moment of opening a position is expected;
Thirdly, the latter is retained for as long as possible. In this case, the transaction is closed when the market situation changes sharply.
Advantages and features of positional trading
The advantage of position trading is that you can avoid large losses. In turn, the trader can wait until the last minute until the price drops to the minimum level. Moreover, some traders buy securities when their prices fall, hoping to make a profit from further resale. At the same time, it relies on the internal price of the stock, which is not taken into account at all in position trading. Each has its own specifics of work. One opens positions only in growth, and the other gives preference only to short sales. The main result of position trading is, naturally, not 10% per annum. A professional sets maximum goals, so he is always on the lookout for strong price movements. At the same time, he can take a risk for a big profit by buying securities without dividends, but with the prospect of selling them at a higher price. Position trading is dominated by high leverage, which is many times greater than the trader’s deposit volume. In traditional investing, such things are excluded.
conclusions
Position trading is the best option for traders who value a calm and stable type of trading, with minimal risks and good profits.
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Forex traders use various methods to increase their trading profitability. One of the most effective and popular ways among players to make a profit by trading on Forex is positional trading. This style has certain strategies that increase the profitability of trading, and its use implies compliance with a number of trading requirements.
Positional trading is trading carried out after performing a thorough analysis of the current market situation and searching for a long-term trend line. Asset transactions are carried out exclusively on long-term assets. The strategy of positional traders using positional Forex trading is to hold trades for a long time, focused on both the purchase and sale of assets.
Playing for the long term without proper experience, as well as an unwillingness to invest seriously, entail insufficiently high incomes or complete losses based on the results of transactions performed with assets.
The essence of the method
Positional trading is the opening of trades performed with the goal of obtaining the maximum possible profit from a trend. Players using this strategy for making money on Forex ignore minor price jumps and noise in the market. The main task of traders is to search for the main trend. It may last for several months.
Attention! In order for asset trading to generate income, before starting trading it is recommended to conduct an in-depth analysis of the current market situation and, based on it, make a forecast of trend development.
Figure 1. Graphical representation of a position trader's transaction
Search for entry points
Applying a positional trading strategy is possible only after properly searching for entry points into the market. Signal searches are performed in different ways.
Some players pay attention to promising assets with good trend potential, which are still located in the trading range. Other traders make trades in assets that are already trending. This makes the trading process easier, since the player does not need to form a trend - the trader, saving time and effort on analysis, simply joins it and makes transactions with assets.
Experienced traders analyze the market situation based on personal experience, observe the behavior of the trend line and use additional tools.
Figure 2. ZigZag indicator - a tool for finding the optimal trading entry point
The main goal of a player using this method of asset trading is to search for a trend. During periods of corrections and consolidations, transactions with assets within the ranges are not carried out. However, in some cases exceptions work. For example, the movement of the value of an asset from one indicator to another over several years (subject to trading in the widest possible range) is considered to be trending price behavior. It is suitable for positional trading.
When making positional transactions, market analysis is based on:
- Economic news;
- Graph readings;
- Data from technical indicators.
Attention! These tools allow you to quickly find already formed trends. An effective search for trading starting points involves the use of various indicators, which act as a powerful and effective tool for analyzing the current market situation and searching for the optimal trend line.
In this trading method, indicators are not applicable to making forecasts about changes in the trend rate. This is due to the fact that these instruments are late in providing reliable information about the movement of the heading line. Data that is as close to reality as possible is obtained using moving averages with different periods. This also makes it possible to more accurately determine the moment when a trend begins to form.
Position trading strategy
Proper use of tools that allow you to perform technical analysis, planning the start and end of trading, and managing potential risks are some of the main tasks of a trader.
During a trend movement, there is a high probability of a complete reversal in the direction of the line before it reaches its maximum values.
This trend behavior is dangerous and has a strong impact on the trader’s deposit.
Players who have experience in positional trading on Forex have the skills and knowledge that allow them to skillfully control the movement of the trend line and respond as quickly as possible to the receipt of signals signaling the beginning of a change in the direction of the trend line.
In order to master positional trading skills without financial risks, professionals recommend practicing the strategy in the medium term. They do not require large financial investments and constant holding of open positions until the end of the main trend.
The long-term positional trading strategy is not suitable for beginners, but is intended for experienced players.
Maximum profitability
A long-term positional Forex strategy is effective when using certain trading methods. The most popular of them is the method. This method is based on analyzing price dynamics over certain periods of time. Players select screens based on different styles. For long-term trading, H1, D1, W1 are used, for medium-term trading - M5, M30, H4. When choosing a trend direction, they are guided by the indicators of the higher timeframe.
Figure 3. Three screen strategy
Attention! This method allows you to most efficiently and accurately find the optimal moments to start or stop trading. To improve the final result, additional tools are used: indicators and oscillators.
Advantages and disadvantages
Position trading has disadvantages and advantages. The advantages of this method include:
- High probability of obtaining high returns. Positional trading involves gradually increasing and maintaining trading positions.
- No need to constantly monitor positions. The operation is performed once a day or even a week.
- Due to the long-term nature of trading, the player gets the opportunity to thoughtfully and without haste analyze the market situation for several days immediately before entering trading. This allows you to choose the most optimal moment to begin transactions with assets.
- Relatively high interest rates on profitable transactions. This is due to the fact that protracted trends most often occur during trading, which practically eliminates the possibility of artificial manipulation of the market situation.
Attention! An important advantage of this style of trading on Forex is the psychological peace of mind of the players. This is due to the absence of the need to monitor the market situation hourly.
Position trading is not without its disadvantages. The disadvantages of this style of making transactions with assets on Forex include:
- Long wait for the results of the chosen strategy. Their monitoring and obtaining reliable information about the profitability or unprofitability of transactions is possible months and years after the start of trading.
- Slow development in trading.
- Great responsibility when making forecasts or analyses: an initially incorrectly chosen strategy will lead to losses, which will become clear after a lot of time.
- The need to invest large sums of money. Position trading is only effective if you make a large initial deposit. Otherwise, the income from performing transactions with assets will be almost imperceptible.
Thus, position trading is ideal for experienced traders. For beginners who have little experience and are not ready to initially invest large sums of money, there are a number of other styles of trading on Forex - they are aimed at quickly making a profit.
What is position trading?
Positional trading is long-term trend trading on charts with long time scales. In position trading, fundamental analysis (its macroeconomic part) and a technical forecasting method are often used. This style of trading is used in literally all markets.
Position traders can hold both long and short positions for the long term. In the latter case, they make money by reducing the price of the asset. Positional shorting is very interesting during periods of financial and economic turmoil. For example, this style made it possible to make money during the crisis of 2008-2009, when many stock markets were marked by a significant drop in quotes.
Position Trading Basics
The essence of positional trading is that a trader opens a position (long or short) in order to obtain maximum profit from the main trend. For position traders, short-term price fluctuations and corrections are not important. Instead, they are interested in the underlying trend itself, which can last for weeks or even months.
This approach to trading has its advantages.
- One of them is that a trader does not have to spend all his free time at the computer. He carries out an analysis, which can take from several hours to several days, and then makes a key decision.
- Subsequently, the open position is simply monitored from time to time depending on events that occur in the market.
- Small price fluctuations are not important to a position trader. Accordingly, frequent market monitoring is not required.
Positional trading can be contrasted when traders are constantly at the computer and open transactions within one trading day. As for another style - , here traders open trades less frequently and hold positions from one day to several weeks. Position traders open several trades per year. Swing traders can open from 25 to 100 positions per year (sometimes more). As for day traders, they have about 1000 or more positions per year. The difference is simply colossal.
Finding entry points in positional trading
Searching for signals in positional trading can be done using various methods. For example, some traders prefer to look for assets that have good trending potential but are still trading in a range. In some cases, you can open positions on assets that are already trading in a trend. In the second case, it is much easier for position traders, since the trend has already begun. Therefore, they can simply join it. Here much less effort and time is spent on analysis.
The main task of a position trader is to find a trend. Accordingly, trading within ranges is not carried out during periods of consolidation and corrections, except in cases where trading occurs in very wide ranges and lasts several years. In the case of such ranges, the price can move from one border to another over several years and this can also be classified as a trend, which is good for a positional trader.
Trends often begin with breakouts of key levels or certain patterns, including price action. In their work, position traders can also use indicatorstechnical analysis. In this case, most often they find trends that have already formed (since most trend indicators lag behind the chart).
Analysis of stock quotes can be carried out, for example, using a 40-week moving average. In this case, the trader can find stocks that have already started to rise or decline.
You can use several indicators simultaneously to search for clearer market entry signals. Using several moving averages with different periods will more clearly indicate the beginning of a trend.
Basic position trading strategy
Despite the fact that in position trading, trades are held for quite a long time, the trader must follow certain rules to achieve success. In particular, we are talking about planning entry points, exit points from the market and risk management.
As a basic strategy for long-term exposure to stocks, we can suggest a price crossover of the 40-week moving average (aka the 200-day). As soon as this happens, you can enter the market.
- If the price crosses the moving average from bottom to top, a signal appears to open a long position.
- When the price crosses the moving average from top to bottom, a signal appears to open a short position.
At first glance, everything is quite simple. But after entering the market, we need to decide on the rules for exiting, that is, closing the position.
There are two main approaches here. You can close a position either manually or using stop orders. Let's start with the second one. Here we can recommend placing stop orders at a distance of 5% from the moving average.
If a trader is not a supporter of setting stop losses, he can wait for the moment when the price crosses the moving average in the opposite direction from the signal and consolidate there.
The screenshot shows the moment to enter a trade, as well as the opportunity to close a position. The exit in the picture is quite early. As you can see, a fairly strong continuation of the trend is developing after an insignificant correction.
Risks and limitations in position trading
The main risks of positional trading include the danger of a trend reversal before it reaches the point planned by the trader. The same small fluctuations can cause a correction to lead to a complete trend reversal.
Another important point is related to the limitations that are inherent exclusively to positional trading. Such restrictions are due to the fact that the trader invests money for a fairly long period of time. Therefore, before opening a position, you need to plan your investments so that you do not have to exit the market early.
But despite such risks and limitations, position trading has many advantages.
Benefits of Position Trading ![](https://i1.wp.com/equity.today/wp-content/uploads/2016/04/%D0%9F%D0%BE%D0%B7%D0%B8%D1%86%D0%B8%D0%BE%D0%BD%D0%BD%D1%8B%D0%B9-%D1%82%D1%80%D0%B5%D0%B9%D0%B4%D0%B8%D0%BD%D0%B3.png)
- First of all, positional trading allows you to get a complete picture of the market and find the main direction of price movement. The trader will not have to be distracted by minor fluctuations, which significantly reduces the risk of making wrong decisions.
- The advantages of positional trading include the ability to use fundamental analysis. The trader analyzes the economic situation in a specific country and in the world and makes a more informed decision. Along with this, he can use technical analysis strategies to obtain more accurate signals.
- Finally, position traders work in a calmer and more measured mode. They don't need to rush into making decisions. The same applies to work after opening a deal. There is no need to constantly monitor the market. You can only open the chart from time to time and view the current state of the market. Fundamental traders look at the latest news and statistics and also occasionally monitor the situation on the chart. In addition, both forecasting methods can be combined, which makes the received signals even more stable.
Investing or trading?
Many novice traders mistakenly believe that position trading is investing. In fact, this is far from the case. There is a huge difference between an investor and a position trader. Enough in the next article.
- A trader, regardless of the period for which he enters into transactions, remains a trader. The main income comes from speculation. That is, the trader buys cheaper in order to sell more expensive.
- The investor earns profit gradually by building his portfolio of stocks, funds and debt securities. Investors typically reinvest most of their profits into purchasing new assets. The investor's profit consists not only and not so much in the difference in quotes, but in dividends and other payments.
- For an investor, an income of 20-25 percent per year can be considered good, while a trader strives to earn the same percentage only in monthly equivalent.
- True, there is still a slight similarity between an investor and a position trader - they can hold the same asset in their hands for quite a long time. But even here there is a difference between them in terms of goals. The only reason why a position trader holds his position is the expectation of receiving a profit from an increase in price or decrease in price of an asset. As for the investor, he can expect an increase in dividends, an increase in the value of the company, an increase in interest payments, and so on.
- The difference between an investor and a trader lies in strategies. The investor's main system is to compile a portfolio of assets. The trader uses many different tactics that help him identify cheap stocks that have the potential to grow or expensive stocks that have the potential to fall in price.
Is it worth resorting to position trading?
Deciding on this issue is not as easy as it seems. In theory, everything sounds quite tempting - low risks, higher potential and chances of success. However, position trading is not suitable for every speculator. Just like, for example, intraday.
What should you pay attention to first? In order to make good money on positional trading, you must have an appropriate deposit size. On small accounts, a trader will not be able to earn a significant profit. And the rules of capital management are somewhat different here. Due to working with higher timeframes, the stop loss is set further. Accordingly, if a trader breaks the rules and invests most of his funds in a transaction, a stop order will not save him from significant losses if the situation develops at some point in time against forecasts. And this is quite real. After all, corrections and consolidations in long-term trading can range from 100 to 500 or even more points in particularly volatile markets.
Before turning to position trading, it is advisable to try it with a small investment in order to understand whether the trader can even work in such an environment. Not everyone is able to maintain an open position for several months, let alone several years (especially if the speculator has previously worked on intraday strategies).
During the testing process, you can continue to work in your previous style, only from time to time turning to a long-term position to analyze the situation and possible adjustments. Thus, the trader will be able to understand for himself whether it is worth using this method or whether it is better to turn to short-term trading, where it is possible to work with a smaller deposit and, with the appropriate approach, increase it several times over the same year of work.
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One of the popular methods is position trading on Forex. Choosing a strategy is a priority task for a participant in exchange trading.
The tactics of behavior of traders on the stock exchange are determined by individual preferences, taking into account financial capabilities, psychological characteristics, trading experience, type of financial market (currency, stock). To settle on an acceptable option, the trader “tests” various schemes. The time spent on such searches is repaid with assets earned by competent actions according to a pre-planned plan. Position trading has its own characteristics and is not suitable for everyone.
What is the essence of positional trading
Determining the direction of the main trend in the long term and placing a small number of orders “following the trend” in order to obtain maximum profit is the principle of the position trader. Successful trading using the positional method is only possible for investors who:
- have significant financial resources (“the airbag” should protect against corrective fluctuations in the long-term trend);
- have a good understanding of macroeconomic indicators;
- make a forecast based on long-term analysis of market fluctuations;
- use a combinational analytical method, where the conclusions of fundamental analysis predominate (indicators are considered as confirmatory signals);
- have psychological stability and are not subject to the opinions of the “crowd”;
- do not need immediate profits and are aimed at making profits in the long term.
Mainly, position trading is suitable for large investors who are able to “watch for production” for years.
![](https://i0.wp.com/ru.i-like-trading.com/wp-content/uploads/2017/04/Dolgosrochnyj-nishodyashhij-trend.jpg)
Risks and benefits of the method
The advantages include the absence of problems inherent in “day trading”:
- “binding” to the monitor;
- a huge number of transactions;
- dependence on news flow;
- “chaos” on intraday charts.
Flaws:
- development of new trading strategies is hampered by long periods of transactions;
- in order to avoid “market misunderstandings” it is necessary to significantly remove “stop orders”;
- there is a risk of unforeseen circumstances that could disrupt the long-term trend.
A trading system based on the positional trading method requires mastering a significant amount of specialized knowledge. Trading courses and books on trading will help you avoid “childhood mistakes.” Financial markets for trading and the rules for working on them are described in detail and clearly in the books of Dr. A. Elder: “Encyclopedia of Stock Trading” and “How to Play and Win on the Stock Exchange”. Educational material for the positional trading course is freely available on the Internet - on video from most Russian stock brokers.
Strategic foundations of the positional method
Planning entry and exit points and risk management is the key task of a trader. The solutions lie in the use of technical analysis tools and competent “money management”.
The danger of a reversal of the main trend before reaching peak values can significantly affect a deposit without stop losses or with stops set for a large number of points. An experienced trader monitors the “course” of the trend and promptly responds to signals indicating a change in trends. An example of technical analysis could be the breaking through of key support or resistance levels (via channels, Fibonacci levels or other instruments), the formation of “reversal” patterns, violation of the “wave pattern”, etc.
![](https://i1.wp.com/ru.i-like-trading.com/wp-content/uploads/2017/04/Okonchanie-voshodyashhego-trenda-figura-razvorota-Golova-Plechi-.jpg)
How to learn position trading without exposing yourself to a high degree of risk? Professionals recommend working out the strategy on medium-term timeframes that do not require significant investments and holding open positions until the end of the global trend. Long-term position trading is directly contraindicated for beginners.
3 Screen Method
Elder trading (Dr. Alexander Elder is the author of the method) is based on the analysis of price dynamics over different time periods. Screens can be selected to suit different styles - for long-term trading choose H1, D1, W1, and for medium-term trading - M5, M30, H4. The higher timeframe is decisive when choosing the trend direction. Using this strategy helps to accurately find entry and exit points (in addition, various indicators and oscillators are used).
![](https://i2.wp.com/ru.i-like-trading.com/wp-content/uploads/2017/04/Tri-ekrana-Eldera-na-raznyh-tajmfrejmah.jpg)
Advice for practicing “positional traders”
- to withstand corrective drawdowns, leverage should not exceed 1:10;
- when managing capital, do not assume a risk of more than 1-2% of the deposit;
- “stop loss” level, which allows you to optimize risks – 300-400 p.;
- patience and confidence in the forecast will give you the opportunity to take maximum profit according to the trend.
Factor influencing any strategy
Trading psychology is assessed by professionals as a component that accounts for 90% of the successful activity of a stock trader. Fear of losing money, uncertainty about the correctness of the chosen method, the excitement of the gambler, the desire to earn a lot at once - these are the main psychological “diseases” that a trader needs to fight.
Famous millionaire traders - Williams, Elder, Borsellino, June and others are psychiatrists by training. It is not economists and mathematicians, but psychiatrists and psychotherapists who achieve the most significant success in stock trading.
Conclusion
The positional trading style is characterized by conservatism and does not provide rapid super-profits, which are achieved with day trading. However, the risks are also different - fast-paced decisions made in intraday transactions put a lot of emotional pressure on the trader and lead to numerous mistakes, often with fatal consequences.
Position trader- a market participant who uses trading strategies, the time interval of which is from several days to several years.
In various sources, position traders are divided into medium-term (long-term) traders and long-flight “birds” - investors.
Let's look at how these market participants differ:
- medium term trader. Transactions of these market participants last from 3 - 4 days to 2 - 3 weeks (sometimes a month). Their profits are based on trends that are displayed on H1, H4 and D1 charts;
- short term investor. Such medium-term traders consider their positions from 1 - 1.5 weeks to 3 - 4 months. Their graphs are level W1-W2;
- long term investor. A position trader of this level works with time intervals from 1 - 2 months to several years. They look at MN level graphs.
A position trader uses primarily fundamental analysis in his strategy. It takes into account economic (statistical) data and the political situation in the countries whose currencies or shares it considers for its trading. Position traders rarely use technical analysis, but they try not to completely abandon it.
Position trading has its pros and cons.
Advantages:
- Position trading does not require spending a lot of time at the computer. Unlike day trading, it is enough to study the situation on the market once or twice a day in order to decide whether to enter the market or stay out of the market.
- The influence of psychological factors in trading. A position trader experiences much less mental stress associated with trading on the stock exchange.
- The influence of daily news price fluctuations is practically not taken into account position traders, since the size of these fluctuations does not greatly affect the goals of long-term strategies.
Flaws:
- The duration of long-term investment activity does not allow one to quickly collect a sufficient amount of statistical data to test new trading strategies.
- The longer a trade is open, the harder it is to take into account changes happening in the world. These changes can greatly affect the outcome of long-term trades.
- Very large stop orders, which can reach several hundred points.
Fig.1 Example of a medium-term deal.
Using trading system signals for opening and closing transactions, you can achieve good results in trading.
To use the positional trading system you need:
- Be independent from the opinions of the majority of traders. Have your own vision of the development of the situation on the market or stock exchange.
- Have a good understanding of the fundamental analysis (economics, politics) of the instrument with which the position trader works.
- Have sufficient self-control, patience and calm.
- One of the important conditions is that a position trader must have a decent-sized deposit in order to withstand a possible drawdown of several hundred points.
If you use the opinions of others to trade without your own analysis of the market situation, if you are impatient, you do not have a lot of capital, you want to make a profit quickly, it does not matter to you what the economic and political situation is in the countries whose currencies and stocks you work with - then positional trading is not suitable for you.
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