What Is Position Trading? (Part I)
Position trading is mostly done by big banks, hedge funds and institutional investors. There are four style of trading: Scalping, Day Trading, Swing Trading and Position Trading. Scalping is very short term like a few minutes. Day trading involves a time frame of less than a day. Swing trading is for a week or slightly more. 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.
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.
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. This is somewhat unfortunate as most retail traders dont have that patience. 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.
Position trading is unlike day trading or swing trading that relies almost exclusively on technical analysis and is based on short time frames. Due to its long term time frame, position trading tends to rely heavily on fundamental analysis along with longer term technical analysis.
Fundamental analysis is geared towards longer term price forecasts rather than swing to swing movements that are primarily the focus of technical analysis. Fundamental analysis concerns itself with the economic forces that drive the major market movements.
These economic forces include interest rates, inflation, GDP, unemployment and help to determine the value of the national currency overtime. The general direction of change in the currency value over the long run is what interests the position traders.
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 was very popular last year with the hedge fund managers. The most popular currency pair for carry traders was NZD/JPY. As carry traders hold interest positive positions to benefit from both regular interest payments and exchange rate profits, carry trading can be considered a form of position trading. How do position traders decide which position to take?
Fundamental analysis exclusively! Position traders establish positions on currency pairs according to their views and experience based on fundamental analysis. Forex position traders weigh strength and weaknesses in currencies by taking various fundamental and technical factors into account.
Lets take an example. Suppose that a position trader has performed fundamental analysis on economic conditions surrounding the major currency pairs that involve the US Dollar on either side of the pair. The position trader is of the opinion keeping in view the present recession in the US economy that the US Dollar is indicating fundamental weakness going forward.
The position trader thinks that the Euro is showing significant fundamental strength at the same time that the US Dollar is showing weakness going forward. This opinion may have been based on 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, on the state of inflationary/deflationary pressure in the economy and so on. - 23196
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.
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. This is somewhat unfortunate as most retail traders dont have that patience. 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.
Position trading is unlike day trading or swing trading that relies almost exclusively on technical analysis and is based on short time frames. Due to its long term time frame, position trading tends to rely heavily on fundamental analysis along with longer term technical analysis.
Fundamental analysis is geared towards longer term price forecasts rather than swing to swing movements that are primarily the focus of technical analysis. Fundamental analysis concerns itself with the economic forces that drive the major market movements.
These economic forces include interest rates, inflation, GDP, unemployment and help to determine the value of the national currency overtime. The general direction of change in the currency value over the long run is what interests the position traders.
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 was very popular last year with the hedge fund managers. The most popular currency pair for carry traders was NZD/JPY. As carry traders hold interest positive positions to benefit from both regular interest payments and exchange rate profits, carry trading can be considered a form of position trading. How do position traders decide which position to take?
Fundamental analysis exclusively! Position traders establish positions on currency pairs according to their views and experience based on fundamental analysis. Forex position traders weigh strength and weaknesses in currencies by taking various fundamental and technical factors into account.
Lets take an example. Suppose that a position trader has performed fundamental analysis on economic conditions surrounding the major currency pairs that involve the US Dollar on either side of the pair. The position trader is of the opinion keeping in view the present recession in the US economy that the US Dollar is indicating fundamental weakness going forward.
The position trader thinks that the Euro is showing significant fundamental strength at the same time that the US Dollar is showing weakness going forward. This opinion may have been based on 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, on the state of inflationary/deflationary pressure in the economy and so on. - 23196
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 X - Men @ 6:42 AM
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