Are you looking for a trading style where you can take a position, then turn your focus to something else?
Do you want to get away from the frantic action of the trading day? Are you looking to hold onto stocks as they make major moves?
If you answered yes to any of those questions, position trading might fit the bill. But be warned: This trading style isn’t for everyone.
Read on for a full rundown of this strategy, including the pros and cons of long-term position trading.
Position Trading: Defined
Position trading is a trading style that involves holding positions in stocks for weeks to months, sometimes even years.
For example, the position trader may want to profit off of stocks making huge gains, perhaps 100% or more. In order to accomplish this, said position trader may look for big runs that can play out over multiple months, which is why, in this example, the position trader can have such a long holding period.
The position trader often looks at longer-term charts — monthly, weekly, and maybe daily bars for the smallest timeframe.
Investor vs. Position Trader
You may be thinking that position trading sounds awfully similar to investing. That’s true, but there are a few key differences in comparing investing to position trading.
An investor generally buys an asset to sit on for the long term. In the stock world that often means a solid company with promising future potential. The investor’s goal is usually to keep the stock for years, often earning a dividend yield and overall price gain in the time that they hold the stock.
The position trader, on the other hand, is more focused on the overall price move. They want to catch the major trend but get out of the stock when the trend reverses. They often don’t care as much about the quality of the underlying business, as long as the stock makes a big move.
Position traders often use stop losses similar to day traders and swing traders. They’re generally not happy to sit in a losing position as investors may at times.
The Pros and Cons of Position Trading
Position trading can potentially be a great trading strategy … but it’s definitely not perfectly suited for every trader.
It’s important to weigh the pros and cons of a trading strategy before deciding if it suits you.
Here are some upsides and downsides of position trading:
Pros for Position Trading
- Ability to catch major moves. With position trading, you can hold stocks as they move — sometimes in big ways — without the need to jump in and out of trades. This can potentially work in your favor if you’re in the right stock.
- Time away from the screens. Let’s say you have a full-time job, go to school, have tons of obligations, or simply enjoy your free time. But you still want to spend a few hours a day on stocks. Position trading can fit into your lifestyle.
- Easier on commissions and fees. Since you’re not constantly jumping in and out of stocks, position trading generally won’t rack up huge amounts of commissions and trading fees compared to shorter-term trading styles.
- High-speed connections aren’t as important. Position traders are known to trade from cruise ships or while traveling the world. They simply don’t need the high-speed trading connections that strategies like day trading require.
Cons for Position Trading
- Need for large directional moves. In a dead market, where stocks rarely make large moves, the position trader often won’t have much luck in catching major moves in stocks. Position trading is generally better in bullish market environments.
- Requires lots of patience. With this trading style, you’ll need to take a position in a stock, then sit on it for weeks or months while the stock ticks up and down each day. That requires a lot of patience. It can be extremely frustrating if you’re the type of trader who finds small moves in stock prices exciting.
- Sniper-like trading required. There are thousands of trading opportunities each day, but smart position traders reject most of them. You need to wait patiently for the right opportunity. Day after day, you watch for the setup that you’ve planned for.
- Your capital is tied up for long periods. When holding a few stocks for weeks to months, your capital will be tied up in just those positions. If you see other exciting trading opportunities, you may miss out, simply because you don’t have the spare capital to jump in.
- Longer learning curve. With a longer-term trading strategy, you’ll make fewer trades in a year than you would as a day trader or swing trader. That can translate into overall less experience in the market. And it may take a longer time to become confident and proficient as a trader.
As you can see, if you’re a more patient trader, then position trading might be a fit for your lifestyle.
But if you’re attracted to the consistent action of the market and want to get involved in trades multiple times a week (or more), then day trading or swing trading may be your preferred trading style.
Take Advantage of StocksToTrade Features When Position Trading
If you’re position trading and looking for trades that offer potential large percentage moves in a stock, you’ll want to refine and hone your research process.
A key goal: to find the exact criteria that you set in your trading plan. This could mean a combination of chart patterns, technical indicators, fundamental ratios, news catalysts, and many other factors.
Struggling to keep track of it all? You could subscribe to a slew of websites — one for charting, one for news, one for fundamental research. Or, you can take the more streamlined approach with a service like StocksToTrade.
StocksToTrade is an all-in-one research and trading platform that can help you find the trading opportunities that fit YOUR criteria each day. It’s designed by traders, for traders to help make your trading day easier.
With StocksToTrade, you’ll get access to premium charting, highly customizable scanning, price and news alerts, news feeds, social media buzz, and so much more.
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Conclusion
By now, you hopefully better understand the pros and cons of position trading.
This can be the right strategy in certain market environments and for certain traders. But remember, it requires patience. You need to be able to wait for the right setups before you enter trades. Just like a sniper. Not everyone can do this!
So how do you know if position trading is right for you? One way is through practice. Try paper trading some setups. See how you feel during the research process and while holding on to positions.
Paper trading is a way to trade your strategy and record the results, without risking capital. StocksToTrade offers a simple but effective paper trading feature. It’s a great chance to learn real-world trading skills. Check it out — a 14-day trial is just $7!
