Most investors participating in the Forex or stock markets are not in the habit of holding orders long. They are attracted to small and fast profits that motivate them to trade continuously. But the rule is what comes easily will easily go. Experienced Etoro traders want to hold their positions for as long as possible using the Position Trading strategy. They don’t want the “fast food” but just want to earn longer in a market trend.
Here, we will introduce a trading style that many successful Etoro investors like Teoh Khai Liang, Jay Edward Smith, etc. use. It is Position Trading. So what is the Position Trading strategy? What is the characteristic? Why do good investors use it?
What is Position Trading?
Position Trading is a long-term buying and holding trading style. This term is commonly used in Forex and stock trading. Long-term traders are called Position Traders.
For Forex investors, they can hold their Position Trading orders from a few weeks to months or years.
For stock traders, it is common to hold stocks from 1 year to decades.
If Swing Trading helps traders catch a single wave then the Position Trading strategy will bring in more than that. It is designed to help traders catch more waves. That is staying in a trend longer without getting stopped out.
Characteristics of the Position Trading strategy
Position Trading is the exact opposite of Scalping and Day Trading. This trading style is hardly interested in short-term fluctuations.
In order to execute the Position Trading strategy, traders will often research and thoroughly study related issues and information. After buying, they almost forget it and wait until it reaches the expected profit before selling.
They often only use fundamental analysis to make trading decisions. Technical factors are used only in addition to identifying a long-term trend.
Position Trading is more commonly seen in the stock market than on the Forex market.
Traders trade in this style only when they have a lot of capital and invest a little in each place, a little for each commodity. This helps to both diversify risks and win big when the market is on the right track.
Capture the core of movements with the Position Trading strategy
Position Trading is a long-term trading strategy. This is where you can stay in a trade for weeks or even months.
The time frames that you can trade are usually days or weeks.
As a long-term trader, you mainly rely on fundamental analysis of your transaction (such as NFP, GDP, Retail, etc.) to make your own forecast.
Alternatively, you can use technical analysis to have more time on your own items.
- Winning trades often yield a high reward.
- It takes very little time to analyze the chart, even just about 30 minutes per day.
- Suitable even for those with a full-time job.
- Much less pressure than the rest of the trading styles.
- Because it is a long-term buying and holding trading style, the trader’s capital is buried in that trade. If they close the order in the middle and withdraw the capital, it will be considered as breaking all the initial plans and not reaching the target.
- Because the market fluctuates unpredictably, if unfortunately, the price goes against the expected trend, the transaction will suffer a heavy loss. Or else, you will get your capital buried without any profit.
Why do successful Etoro investors use the Position Trading strategy?
One big advantage for people using the Position Trading strategy is that they spend extremely little time managing orders or viewing charts. Sometimes, they just need to look at the chart 1-2 times a month. From there, they can reduce the psychological pressure. They will have more time to do other stuff while the profit earned from trading may not be inferior or even higher than Day Traders.
Another advantage is that they pay less for the spread. This is inherently painful on Day Traders because spreads cut a part of their profits. They will have to pay swaps for negative swaps but will earn a positive swap in return, which can be considered as losing nothing.
Day Traders may catch small and short waves. But with Position Trading, you will swallow the long waves, reaping a much larger profit than other types of trading.
How to use the Position Trading strategy in Etoro
If you have not had a chance to see how masters trade, this section will describe that process. You may not know how much profit they make. However, everyone can see the sheer persistence as they hold on to a trading position.
How to use the Position Trading strategy with the MA 200 indicator in Etoro
Conditions: Daily or weekly Japanese candlestick charts. The MA200 indicator in Etoro.
Open a BUY order when: The price crosses the MA200 indicator from below.
Explanation: When the Japanese candlestick chart is below the MA200, a downtrend is likely. When the price goes up and crosses the MA200 from below, it signals a bearish to bullish reversal. Right at the intersection point is when investors find the safe entry point for BUY orders.
Open a SELL order when: The price crosses the MA200 indicator from above.
Explanation: Mostly, when the candlestick chart is above the MA200, the uptrend is very likely. The moment when the price intersects with the MA200, the trend signals a reversal from up to down. That’s when traders can open a SELL order safely.
How to apply the Position Trading strategy with the support/resistance in Etoro
At critical prices, there is often a force differential between the sellers and the buyers. Therefore, a bearish reversal will occur when the price enters the resistance zone where too many investors place sell orders because they think it is a reasonable selling price. Conversely, the price will increase when it enters the support zone where investors place buy orders thinking it is a good price.
Conditions: Daily or weekly Japanese candlestick charts.
Open SELL orders when: the price hits the resistance zone.
Explanation: At most resistance zones, there will be a dominance of the sellers. It is considered a good price zone to sell, so it is difficult for the price to break out of that zone. It may take two or three tests or a strong buying force to break out of it. So it is a safe point to open a SELL order when the price is about to enter.
Open a BUY order when: the price hits the support zone.
Explanation: Right at the support zone, there is a strong buying force because investors think the price is too low compared to its value. Mostly, prices rebound when entering the support zone. As soon as the price enters, it is the safest time to open a BUY order.
In one word
I hope that this article can partly describe to you the Position Trading strategy used by legendary investors. Only people with respectable patience can hold a transaction for years. Catching an entire downtrend or uptrend over a long period is great in trading.
Each person has a different trading style. The Position Trading strategy is not a must. Be yourself and choose a trading style that suits your personality. Doing what you love and consider to be right will help you step quickly towards success.