What’s The Right Approach For Position Trading In Forex?

When it comes to forex trading, having a solid trading plan or strategy would be the blueprint for building a successful trading career. But before that, you need to choose a general trading style and determine what kind of trading opportunities would be ideal for your trading system. A long-time trading approach that has become popular among forex traders is position trading, and it offers a lot of profit potential if you proceed with a sound plan and follow the right approach for implementing your trading plan. In this article, you will get an overview of position trading and different types of trading strategies, along with methods for implementing them in the best possible manner.

Overview of Position Trading

Position trading is primarily about opening a trade position for a longer duration, as the trade will run for an extended period lasting for several months or even years. The primary goal of adopting position trading as your preferred trading style is to make profits from long-term market trends. Then, the trade returns are quickly analysed in their account’s base currency using a profit calculator. This type of trading requires a lot of planning and patience as you need to be resilient towards short-term trends and volatility that happen in the forex market. Short-term trading strategies are followed to make quick profits from short-term trends, but position trading is about having a long-term goal while ignoring short-term fluctuations.

Traders who go for position trading will rely on fundamental analysis along with technical analysis. In fact, fundamentals have a key role to play in planning these types of trades, as long-term trends in the currency market are always influenced by the fundamentals that drive the market. This includes economic policies, central bank interest rates, inflation, and more things that have an impact on global economies and thereby play a part in the exchange rate changes that happen in the forex market.

In the case of position trading, traders tend to open fewer positions, but the trade size would be bigger. This way, they capitalise on long-term trends without opening too many trades. But at the same time, the bigger position sizing can give rise to a lot of risks, which need to be managed well to get the desired trading results. Another problem with position trading is that accurate prediction of long-term trends is not easy due to the highly volatile nature of currency pairs and ever-changing economic situations. However, many traders prefer position trading over other short-term trading styles due to their high profit potential while opening a long-term position.

Types of Position Trading Strategies

There are quite a few types of position trading strategies that traders adopt in the forex market. The most popular position trading strategies are given below:

• Support and Resistance Trading Strategy

This is one of the simplest position trading strategies. Just as the name suggests, this strategy involves the use of support and resistance levels based on which the traders find the right trade setups for opening long-term trade positions. Support and resistance levels can be used to determine the direction of a trend by which you get to know whether the currency pair price will have an uptrend or a downtrend.

The support level indicates the minimum price; the currency pair won’t fall below this price in most situations. On the other hand, the resistance level indicates the highest price level that the currency pair is expected to reach. When the price crosses the resistance level, it signals a possible uptrend, and when the price breaks below the support level, it suggests a potential downtrend.

• Breakout trading strategy

Breakout trading strategies are very popular among forex traders as the forex market experiences a lot of price breakouts, giving us a good amount of trading opportunities. This strategy is pretty similar to support and resistance trading, but here, you will be opening a position at the early stages of a trend, that is, the point at which the price breaks out for the first time.

In the case of a breakout below the support level, traders will go short and open a long-term position, expecting a further price fall. If the price breaks above the resistance level, the position traders will go long and open a buy position for longer. Traders must be skilled enough to identify breakouts well in order to use them in position trading, as fake breakouts can also happen, which may give false signals.

• Range Trading Strategy

Since the forex market is known for its unpredictable nature and abrupt shifts, range trading can also be a suitable strategy for position trading. You need to identify when a currency pair is overbought or oversold and enter a trade based on that. When the instrument is oversold, the prices start moving to the support level, and in the case of overbought assets, the price will move to resistance levels. Just focus on capturing some pips when there is a quick movement in the trade. You can do it multiple times a day to accumulate a decent profit at the end of the day. You can use a pip calculator to find out how many pips you have captured in the base currency of your trading account.

• Pullback and Retracement Strategy 

Pullback happens when the uptrend is interrupted by a brief price reversal. Such temporary dips are common in the forex market, and traders can find good opportunities to trade by following a pullback strategy in such situations. The uptrend will be paused for a short duration, making it the right time to buy low and sell high when it resumes.

How to Implement Position Trading Strategies?

• Plan well – Planning is the most important phase of position trading, as you will be holding a position for a fairly long period, which can be months or years. You need to consider many costs that will be incurred to keep the long-term trade positions running. Holding an overnight trade position will always result in a swap or rollover fee. In the case of position trading, the interest charges should be calculated in advance, as the longer the holding period is, the higher the swap rates for a trade will be.

• Prioritise fundamental analysis- The position trading strategies that we mentioned above are mostly based on technical analysis. However, fundamental analysis should be prioritised while following these strategies. Long-term trends in the forex market will be influenced by fundamental changes that happen in the world of currencies. Hence, you need to spend a good amount of time on in-depth market research and look back at the history of long-term trends in various currency pairs.

• Be patient – Being patient is extremely important in position trading, as you need to be immune to short-term fluctuations and stick to your trading plan no matter what. Take your time to backtest your position trading strategy and go live only when you are confident about your trading plan. 

Wrap Up

The right approach for position trading focuses on the gains you can make from a trade in the far future. Here, you won’t be looking to make quick profits but need to be patient and wait until your price targets are hit. Position trading is not entirely free or risky, and risk management should be at the core of your trading plan to get the desired trading results in the long run.