Position trading is when you hold a position over a longer period of time of weeks and months because you think there is a good possibility that it will go in your favor in that time period for a big profit. Position traders try to trade in a higher time frame the intra-day noise that is mostly random and usually don’t trade based on news unless it effects their long term sentiment or reason for the position trade in the first place. Most position traders are not very active and tend to only place a few bigger trades each year and they rarely care about daily price action looking more at the price action on the weekly and monthly chart to see if their trade is still valid.
Position traders look to capture longer term moves in a market similar to trend followers but they tend to be less diversified betting bigger on a few trades. Buy and hold investors are some of the only people that hold their investments longer than position traders. Position traders are looking for a long term move.
A position trader is trying to capture the majority of the move in a trend which could result in a big profit with the capital at risk in the trade. Position trading is almost the opposite of of day trading. Day traders are looking for small profits on a short time frame while position traders are looking for big profits on a long time frame.
Position traders are also looking for much bigger wins that swing traders. Swing traders just want to catch a swing for a few days while position traders like to catch a trend for a few months when possible.
Position trading is not a specific type of trading it can use either technical analysis or fundamental analysis, or a confluence of the two for trade ideas and strategies. Position traders can look at a market trend, an individual stock prospect, or macro trends place a trade. Position traders also tend to have a trading plan with defined entries and exits establishing their risk/reward ratio and use position sizing to minimize losses but make their gains meaningful. They will also exit their trade if the technicals or fundamentals change their original narrative for why they entered the trade.
A big strength to position trading is that when a trade is working out their is little screen time managing the trade and when it does not work the screen time is simply to exit for a loss. Many position traders trade off end of day or end of month prices and do not watch their positions all day. Minor fluctuations are ignored and a change in the trend direction is what is focused on.
Position trading is the long term process of entering a trade and letting a big move play out over a prolonged time period as long as the initial thesis for the entry stays in place for both the technicals and the fundamentals reasons.
Stock Courtesy of StockCharts.com