Hello guys, in the following minutes I wantto discuss the basics of the position trading, the advantages of adopting this trading styleand we will also see 3 position trading strategies you could implement right away.
Position trading is a trading technique whichlooks at the bigger picture of the market, usually involving a combination of technicalanalysis and fundamental analysis.
When evaluating the markets, position tradersusually make their research on weekly and monthly price charts.
I’m sure you already know that 95% of alltraders lose money and only 5% of them make any real money.
This is due to the fact that the majorityof traders enter the markets with a “get rich quick” mentality.
Short-term trading can be profitable, buton the long run you’ll be safer when adopting a position trading attitude.
When executed correctly, position tradingcomes with several advantages: The most important advantage of the positiontrading eliminates market noise Sometimes when trading on shorter time framesyou get caught up in the market price fluctuations, rumors or the constant monitoring of the market.
That’s market noise.
Position trading on higher time frames willhelp you to remove the market noise and to extract the correct information from the price.
Another advantage is the flexibilityWhile day traders monitor the price action very closely and their “screen time” isconsiderably higher, position traders don’t have to deal with such problems.
Position trading offers time away from charts.
Also, position traders execute fewer tradesand they don’t have to monitor the trades all the time.
Another advantage of the position tradingis 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 andexecute fewer trades.
Also, position traders don’t have to dealwith the daily stress arising from trading, that’s because their positions have plentyof room to survive the market volatility.
Another important advantage of position tradingis the fact that signals are more relevant on higher time framesPosition traders often use the daily, weekly and monthly charts.
They are not interested in analyzing lowertime frames.
This adds weight to their trading systems.
A divergence is much stronger on the weeklychart than on a 15-minute chart.
A moving average crossover has more relevanceon the daily chart than on the 5-minute chart.
By using higher time frames position tradersimprove the quality of their trades.
Now that we discussed the advantages of positiontrading, let’s see a couple of strategies used by position traders.
An efficient position trading strategy isdivergence trading on the weekly/monthly charts.
Divergences are more reliable on higher timeframes because the market does not move as fast and it is easier to define trends.
By trading divergences, the position traderssee the patterns developing and have time to make the correct decisions.
In this weekly gold chart, we spotted an excellenthidden divergence opportunity.
The gold price recorded a strong upward trendand retraced to the 23.
6 Fibonacci retracement level.
During this time, a hidden divergence patterndeveloped on the stochastic oscillator.
This represented a perfect buy for a positiontrader, the gold price continuing its upward trend.
A similar pattern is seen in this aussie dollarweekly chart.
After 4 months of price increases, the marketretraced to 38.
2 fib level.
The stochastic indicator showed a hidden divergencearound that area, representing a good buy opportunity for a position trader.
The price indeed rejected that area and continuedits upward trend for the rest of the year.
On the Apple stock chart, we found this patternonce again.
The Apple price was in a strong upward trendon the weekly chart.
The price retraced to 38.
2 fib level.
This move, combined with the hidden divergenceon the stochastic oscillator represented a great opportunity for a position trader.
As you can observe from these examples, thehidden divergences represent a reliable tool for position traders on the higher time frames, generating high probability signals.
Another viable strategy for a position traderis the carry trade.
The carry trade is an interesting forex long-termstrategy that is based on the difference in interest rates around the world.
It’s a strategy through which a positiontrader sells a certain currency with a low-interest rate and uses the funds to buy a currencywith higher interest rate.
By executing a carry trade, the position traderintends to generate profit from the difference in interest rates between two countries.
Also, with an appropriate approach, the positiontrader aims to benefit not only from the difference in interest rates but also from the changesin the exchange rate.
Here’s an example, the Aussie dollar/ andthe Japanese yen on the monthly timeframe.
That’s a good carry trade opportunity becausethere is a big difference between interest rates of the 2 countries, so we could makea profit in the long term from the swap.
After we determined the main monthly relevantsupport and resistance and potential price patterns we identified a possible long positionin the direction of the prevailing upward trend, after the price rejected the 38.
2 fiblevel.
A long entry on the currency pair would bea safe entry, considering the long term.
The long position on the instrument is relatedto a positive swap, and thus the profit of such a transaction would be even greater ifthe currency pair will continue to move upwards.
Another position trading strategy involvesmoving averages.
The moving averages are probably the mostwell-known and heavily used indicators in technical analysis because they effectivelycaptures the trend of a financial market in an easily identifiable manner.
Position traders often use moving averagesfor identifying and confirming support and resistance levels.
A crossover between 2 moving average is probablyone of the most well-known technical analysis signal used by traders.
The strategy is simple, position traders trademoving averages, one with a shorter period and the other with a longer period and trackthe signals when a crossover occurs.
This is the simplest position trading strategybecause moving average crossovers on higher timeframes work better than short-term crossovers.
This is likely because they produce fewerfalse signals.
However, be careful with moving average crossovers, because this strategy works only in trending markets.
When the market is in a range, you’ll probablysee something similar on your charts.
Despite the fact that position trading isa long-term strategy and takes some time to profit from markets, it’s a safer alternativecompared to the other strategies in the market.
Used it in conjunction with the long-termtrend and with a proper money management system, the position trading might bring back theenjoyment of trading, without having to spend all day in front of the computer.
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Until next time.
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