What is position trading?
Position trading is a long-term trading strategy that seeks to capitalise on trends in the market. As the intention is not to trade actively, position trading can be considered the closest rung on the ladder to a true buy and hold investment strategy.
Position traders identify and buy stocks they can keep for weeks, months or even years. The difference between position trading and investing is that while investors are looking to sit on a stock indefinitely, position traders will periodically assess their purchases- and sell if the overall momentum appears to have stopped. Position traders may not be troubled by the small downward corrections frequently encountered along the way- unlike day traders or scalpers – but they do keep a watchful eye on the overall trend of their stock.
This is a common introductory strategy as it has the potential for significant gains without requiring the constant attention needed in other strategies such as day trading. Some of the potential advantages are:
Low transaction fees. Most trading platforms charge a per trade transaction fee. Position trading by definition requires infrequent trades and this will reduce the overall amount spent. Ensuring any long-term returns are not eroded by constant transaction fees makes position trading attractive.
Smaller time commitment. Position trading does require significant upfront research, but this can be done on your schedule, in a time frame to which you are able to commit. Positions should be monitored regularly but do not require the constant attention to minor fluctuations needed in day trading. Periodic adjustments of stop-loss positions can mitigate monitoring requirements.
Less noise. Position traders seek to identify overall trends in the market and to capitalise on the inevitable shifts in the economy. Position traders don’t need to be hung up on every statistic from every company and can instead focus on the big picture.