What is a ‘Position Trader’
A position trader is someone who holds a position, usually stocks, for the long term; from weeks to months, even years. They are less concerned with short-term fluctuations and the news of the day unless it impacts the big picture behind the stock they are trading. Position traders do not trade actively and the fewer trades they make in a year, the closer they are to becoming buy-and-hold long-term investors.
BREAKING DOWN ‘Position Trader’
Many position traders will take a look at weekly or monthly charts to get a sense of where the stock, bond or other asset is relative to a given trend. Position trading is the opposite of day trading because the goal is to profit from the move in the primary trend rather than the short-term fluctuations that occur day to day.
Position traders may use a combination of technical and fundamental analysis to make trading decisions, and often perform more thorough evaluations of the companies behind the stocks. Unlike day traders, they have the luxury of time.
Why Investors Use Position Trading
The basic tenet of stock market analysis is that stocks move in trends. Once a trend starts, it is likely to continue. Traders make profits by recognizing a trend early, buying a stock for the duration of the trend and selling as soon as it has run its course. Both position and swing trading are based on trend following; the difference is in the trend’s duration.
Position traders will look at longer-term analyses such as the 200-day moving average to identify the primary trend. Swing traders might look at the 50-day average and day traders look at the 10-day average or even hourly moving averages.
Whereas day traders can set aside fundamentals, position traders typically start their selection process using fundamental analysis. They then turn to technical analysis to identify proper buy points, potential targets and stop loss levels.
Is Position Trading for You?
All investors and traders should match their trading style with their own personal goals and each style has its pros and cons. The first consideration must be the reason you are investing in the first place. Are you building a nest egg for the future or do you plan to make a living trading? Or do you simply enjoy dabbling in the market based on your own research and want to own a piece of a company? And how much time do you want to devote each week or each day to tracking your portfolio?
You also must understand kind of market in place. Is it a bull market with a strong trend? If so, position trading is ideally suited. However, if it is a bear market, it is not. Also, if the market is flat, moving sideways and just wiggling around, day trading has the advantage.