What is a Position Trader?
A position trader buys an investment for the long term in the expectation that it will appreciate in value. This type of trader is less concerned with short-term fluctuations in price and the news of the day unless they alter the trader’s long term view of the position.
Position traders might be seen as the opposite of day traders. They do not trade actively, with most placing fewer than 10 trades in a year.
Approaches of Position Traders
Position trading generally involves the utilization of both fundamental and technical analyses.
Fundamental analysis is especially important to position traders who expect to hold the assets for a longer time frame. Fundamental analysis in position trading is frequently associated with stock-picking. It allows traders to find winning stocks that may provide high returns.
Technical analysis is used to identify trends in asset prices that will allow a trader to earn profits. In addition, it aims to identify trends that will last long enough and provides warning signals of potential trend reversals
Technical analysis usually provides position traders with two options: trade the assets with strong trending potential that have not yet started trending, or trade the assets that have already begun trending.
The first option may provide higher returns, but it is riskier and more research-intensive. On the other hand, the second option is less research-intensive, but the trader may miss the momentum to earn substantial profits.
Risks with Position Trading
Similar to other trading strategies, position trading is associated with some risks. The most common risks of position trading are:
- Trend reversal: An unexpected trend reversal in asset prices can result in substantial losses for the trader.
- Low liquidity: The capital of position traders is usually locked up for relatively long time periods.