Position Trading Explained (Part I)
Position trading is all about taking a directional market position and holding it as long as the trade makes sense from the trend standpoint. This means that positions are held for longer term. Now there are four style of trading: Scalping, Day Trading, Swing Trading and Position Trading.
Most individual and retail traders do not have the patience for position trading. Retail traders dont have the stamina to stay longer than a few weeks in a trade. Position trading may mean keeping a trade open from one week to a month to as long as a year or possibly more in the fast moving world of forex trading.
This is somewhat unfortunate as most retail traders dont have that patience to become successful position traders. Only those position traders who have the patience to stick with the trend and let their profits run are generally able to capitalize on these longer term price moves. Position trading can be one of the most profitable styles of trading due to the fact that many currencies tend to trend well on long term basis.
Due to its long term time frame, position trading tends to rely heavily on fundamental analysis along with longer term technical analysis. This is unlike day trading or swing trading that relies almost exclusively on technical analysis due to the short time frames.
As a forex trader, you must be aware that there are two type of analysis that is done to analyze the market forces, fundamental and technical. Fundamental analysis concerns itself with the economic forces that drive the major market movements. Fundamental analysis is geared towards longer term price forecasts rather than the swing to swing movements that are primarily the focus of technical analysis.
Technical analysis is based on the study of price action to predict the short term futures direction of the price action. Technical analysis is always short term in nature. The general direction of change in the currency value over the long run is what interests the position traders. This can be only done through the fundamental analysis. The economic forces that determine the long term trend of a currency include interest rates, inflation, GDP, unemployment. Fundamental analysis helps to determine the value of the national currency overtime.
Trading with the trend is what the trend traders do. Position trading and trend trading both follow almost similar approaches. However, position traders often rely on fundamentals along with the technicals; trend traders are almost exclusively technical in nature.
Carry trading can be considered a form of position trading as carry traders hold interest positive positions to benefit from both regular interest payments and exchange rate profits. How do position traders decide which position to take?
Forex position traders weigh strength and weaknesses in currencies by taking various fundamental and technical factors into account. They then establish positions on currency pairs according to their views.
Lets suppose that a position trader is of the view that the US Dollar is indicating fundamental weakness going forward. He/she has performed fundamental analysis on economic conditions surrounding the major currency pairs that involve the US Dollar on either side of the pair.
At the same time, the position trader thinks that the Euro is showing significant fundamental strength going forward. This opinion may have been formed on the state of inflationary pressure in the economy, the recent rate of economic growth, comments by the Federal Reserve Board (FED) Chairman or the President of European Central Bank (ECB), the state of ongoing recession and so on. - 23305
Most individual and retail traders do not have the patience for position trading. Retail traders dont have the stamina to stay longer than a few weeks in a trade. Position trading may mean keeping a trade open from one week to a month to as long as a year or possibly more in the fast moving world of forex trading.
This is somewhat unfortunate as most retail traders dont have that patience to become successful position traders. Only those position traders who have the patience to stick with the trend and let their profits run are generally able to capitalize on these longer term price moves. Position trading can be one of the most profitable styles of trading due to the fact that many currencies tend to trend well on long term basis.
Due to its long term time frame, position trading tends to rely heavily on fundamental analysis along with longer term technical analysis. This is unlike day trading or swing trading that relies almost exclusively on technical analysis due to the short time frames.
As a forex trader, you must be aware that there are two type of analysis that is done to analyze the market forces, fundamental and technical. Fundamental analysis concerns itself with the economic forces that drive the major market movements. Fundamental analysis is geared towards longer term price forecasts rather than the swing to swing movements that are primarily the focus of technical analysis.
Technical analysis is based on the study of price action to predict the short term futures direction of the price action. Technical analysis is always short term in nature. The general direction of change in the currency value over the long run is what interests the position traders. This can be only done through the fundamental analysis. The economic forces that determine the long term trend of a currency include interest rates, inflation, GDP, unemployment. Fundamental analysis helps to determine the value of the national currency overtime.
Trading with the trend is what the trend traders do. Position trading and trend trading both follow almost similar approaches. However, position traders often rely on fundamentals along with the technicals; trend traders are almost exclusively technical in nature.
Carry trading can be considered a form of position trading as carry traders hold interest positive positions to benefit from both regular interest payments and exchange rate profits. How do position traders decide which position to take?
Forex position traders weigh strength and weaknesses in currencies by taking various fundamental and technical factors into account. They then establish positions on currency pairs according to their views.
Lets suppose that a position trader is of the view that the US Dollar is indicating fundamental weakness going forward. He/she has performed fundamental analysis on economic conditions surrounding the major currency pairs that involve the US Dollar on either side of the pair.
At the same time, the position trader thinks that the Euro is showing significant fundamental strength going forward. This opinion may have been formed on the state of inflationary pressure in the economy, the recent rate of economic growth, comments by the Federal Reserve Board (FED) Chairman or the President of European Central Bank (ECB), the state of ongoing recession and so on. - 23305
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Try Strignano's Forex Signals free. Discover a revolutionary Forex Robot Trading System!
posted by Mr. Forex at
12:28 AM
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