Position Trading

Position trading has evolved from the nineteenth century when individual traders could not trade except through a broker. Brokers who lived close to the stock exchange received ticker tapes which helped to keep them up to date with the latest activities on the stock market. Then, investors used the information on the ticker tapes to decide on the best stocks to buy. The brokers then invested on their behalf.

Position Trading (Source: Steemit.com)

However, the1987 stock market crash led the Securities and Exchange Commission to introduce a new system that allowed individual traders to buy shares themselves. This also made it possible for position traders to personally monitor their investments and assess long-term changes in the value of their assets.

How Does Position Trading Work?

Position trading is a trading strategy that is based on following the market trend of a financial instrument and then buying and holding it for a long time (usually for months) before selling on the perception that it has reached its peak.  In position trading, the trader uses fundamental analysis, technical analysis, or a combination of both to assess a stock or any other financial asset before trading it. Once a position trader buys an asset, he also initiates safeguards to prevent losses, and then  waits for his investment to reap returns.

Part of the safeguard in position trading is the stop-loss order. This is the highest amount of loss that the trader is willing to incur on his position before he sells. The major work that is done in position trading comes before the trade is made. Since he is a reasonably long-term trading strategist, the position trader always needs to make extensive research on the asset he wants to purchase.

A position trader buys a financial instrument if it is on an upward trend and he thinks that it would continue to steadily rise. He then sells when he believes that it has reached its peak, the end of the trend.

10 Questions to Ask Yourself Before Adopting Position Trading

  1. Do You Have the Required Patience? Position trading is a long-term trading strategy. The trader reaps his benefits after a long time. However, before then, there can be sudden changes and minor fluctuations in the trend of the financial instrument. The trader needs to ignore those fluctuations and wait until the asset reaches its maximum potential or his target price.
  2. What Is Your Trading Plan? A position trader should make a good plan that should detail his entry, exit, and stop/loss prices before he begins trading. This will ensure that he limits his exposure to avoidable losses.
  3. Can You Stick to the Plan?  Before your trade reaches its peak, there is a huge possibility that it will experience minor fluctuations in its market price. However, do not deviate from the plan at this point. Make sure that you stick to the long-term goal and avoid making sudden decisions based on emotions.
  4. Do You Have the Required Knowledge?  All trading strategies require a certain level of knowledge and experience. You should have adequate knowledge about how the market works. Otherwise, your decisions will be based on impulse rather than a careful assessment of the factors that can affect market prices.
  5. Are You a Good Researcher?  Position trading requires extensive research on the stock or financial instrument that you want to trade. You need to assess the instrument and decide if it has the potential for long-term growth.
  6. Can You Afford to Have Your Capital Tied Up for A Long Time?  In position trading, the trader’s capital that he invests in an instrument is tied up for a long time until he liquidates his position. You need to ask yourself if you’re willing to spare that amount for that long. 
  7. How Much Time Are You Willing to Devote?  Although position trading does not require constant concentration like scalping and day trading do, you still need to devote some time to monitor the growth of your investment.
  8. What Is Your Reason for Trading?  You need to align your reasons for trading with the trading strategy you employ. If you are willing to hold your position for a long time before selling, then position trading is the right trading strategy for you.
  9. What Is the Highest Amount You Are Willing to Lose on a Trade Determine the maximum amount of money you’re willing to lose on a trade. This helps you to set the stop-loss order for that trade.
  10. Do You Have a Good Exit Plan?  Your exit plan should detail when you intend to sell your cryptocurrency or stock. In position trading, that is usually after it has peaked or when the stop-loss order is triggered.

The information on this website and all associated literature are for educational and informational purposes. It does not constitute a fiduciary duty or obligation between Uncut Lab and you. Please consult your financial and investment professional for your specific situation.



I am the Uncut Lab resident cloud computing junkie. I help curate the written content in our Education Corner, providing engaging articles on foundational concepts in cloud computing, data analytics, machine learning, and blockchain technology. Feel free to reach out to me with questions or topics that you would like us to cover. Thanks!

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