Strategy #2: Position Trading
Was there a moment you saw the writing on the wall way in advance and acted accordingly?
While everyone else around you was blindsided, you calmly side-stepped the problem and even managed to come out a little ahead… You clever dog!
Every once in a while, life just gives you a taste of that…
That feeling when everything is in alignment and you just can’t lose…
And that is the power you can tap into with Position Trading.
It’s All About the Trends
If you asked a position trader to go day trading with you, they’d probably have a heart attack. That’s because they’re not as active as day traders (most will place fewer than 10 trades in a year), and they like to play the long game.
That’s because Position Trading is all about following trends. Their core belief is, “where there’s smoke, there’s fire.”
Because when a trend starts, it’s bound to keep going before it eventually dies down. But the real money is made when you identify winning trends, enter with a sizable position, and exit at a desired price.
If there are no desired prices to exit at, you can always control risk with a stop-loss.
How to Position Trade
When it comes to the basics, position trading involves:
- Fundamental analysis: This is when you hold on to assets for a longer time frame. Depending on the assets you pick, you will need to do your research and discern when the volume and price will hit a peak point over time, then exit accordingly.
- Technical analysis: This involves two ways of executing the fundamental analysis. At your own risk and expense of time, you can either research and predict trends… then trade the assets before they peak for a premium exit and maximum profits. Or you can just catch the wave as it’s peaking and trade the assets. It takes less risk and research, but there’s not as much profit either.
Why Position Trading?
It goes back to being able to predict the future. Everyone likes to be the “hipster” once in a while when it comes to trends.
Being one of the first people to latch onto something before other people do offers a certain thrill.
In addition, position trading appears to be less intense than day trading.
The philosophy of position trading is geared for the bulls as well. So if you have an optimistic mindset with a good trading strategy, this type of trading is for you.
But as always, risk is involved and some traders end up chasing trends at the end of a waterfall.
Don’t Go Chasing Waterfalls
Some trends are all hype and the most common risks you need to watch out for include:
- Trend reversal: Some trends turn out to be hype or the burst of a bubble. If you notice mass hype and hysteria around you about a certain asset, that’s a good sign to exit. If not, it could lead to major financial losses.
- Low Liquidity and cash flow: If you’re not prepared to lock up a sizable amount of capital for a long period of time, then don’t take this approach. Don’t trade with money you’d desperately need in an emergency.
Now that you are aware, it’s up to you to keep your eyes peeled for what happens in the future.