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Position trading is a strategy traders employ to ride on the market’s long-term trends. It is considered a more conservative approach than day trading or scalping, where positions are held for days or weeks. Position trading has several benefits, including reducing stress and taking advantage of more significant price movements. However, you must note that this strategy also has risks. You can get started in position trading with Saxo Bank.

Define your goals

Before you begin position trading, you must first define your goals. Are you looking to generate profits or grow your capital? What kind of risk are you willing to take? Your answers will help you determine the best course of action and strategy.

Find a suitable market

Not all markets are suitable for position trading. You will need to find a market that is liquid enough so that you can enter and exit trades quickly but not so volatile that prices fluctuate wildly. The Singapore options market is generally considered a good choice for position traders.

Consider your time frame

Position trading generally relies on longer-term charts such as daily or weekly charts because you are looking to ride on the market’s overall trend rather than trying to profit from small price movements.

If you don’t have the time to monitor your trades daily, you can opt for a longer-term timeframe, such as monthly charts. However, be aware that this will also require you to hold your positions for a more extended period.

Choose your entry and exit points

After determining your time frame, you must identify suitable entry and exit points. To do this, you can use technical indicators such as moving averages or support and resistance levels.

Another approach is to use fundamental analysis to identify undervalued or overvalued companies. You can then buy when prices are low and sell when they rebound.

Place your trade

Once you have found a market, determined your time frame and chosen your entry and exit points, it is time to place your trade. You can enter the relevant buy or sell order using a broker.

If you are trading CFDs, you must open a position by selecting the number of units you wish to buy or sell. You can then monitor your trade using the platform’s live charts.

Manage your risk

When position trading, it is essential to manage your risk carefully. You can do this by placing stop-loss orders. It will limit your losses if the market moves against you.

You could also use leverage to increase your potential profits. However, be aware that this also increases your risk. Use leverage only if you are comfortable with the risks involved.

Review your trade

Once your trade is placed, review it regularly to ensure it is still in line with your original goals, which will help you make any necessary adjustments to your stop-loss or take-profit orders.

Risks of position trading:

You may miss out on opportunities

If you only look at longer-term charts, you may miss out on short-term trading opportunities because you will focus on the market’s overall trend rather than small price movements.

You may hold on to losing trades for too long

If you do not review your positions regularly, you may hold on to losing trades for too long. It can erode your capital and affect your overall profitability.

The markets may not trend

There are times when the markets may not trend, making generating profits from position trading challenging. If you experience this, you must be patient and wait for the market to move in your favour again.

You may experience drawdowns

Drawdowns are periods when your account value decreases, which can be due to losses or margin calls. When this happens, you will need enough capital to cover your losses.

You may need to use leverage

If you are trading with leverage, you may need to put down more money than you would if you were trading without it, which can increase your risk of losing money if the market moves against you.