What is a Position Trader?

Position trader refers to an individual who holds an investment for an extended period of time with the expectation that it will appreciate in value. The average time frames for holding positions can be measured in weeks to months. They are less concerned with short-term fluctuations and the news of the day unless it impacts the long term view of their position. Position traders do not trade actively, with most placing less than 10 trades a year.

Understanding Position Traders

Position traders are, by definition, trend followers. Their core belief is that once a trend starts, it is likely to continue. Only buy-and-hold long-term investors, who are classified as passive investors, hold their positions for longer periods than do position traders.

Their trading philosophy is geared toward successfully capturing the bulk of a trend's move which would result in an appreciation of their investment capital. As such, it is the polar opposite of day trading which seeks to take advantage of short term market fluctuations. It also differs from swing trading in that, though both are based on concept of trend following, position traders hold their positions for much longer time frames than do swing traders.

Position traders may use technical analysis, fundamental analysis, or a combination of both to make trading decisions. They also rely on macroeconomic factors, general market trends and historical patterns to select investments which they believe will achieve their desired outcome. To be successful, a position trader has to identify the entry / exit levels and have a plan in place to control risk, usually via stop-loss levels.

The main advantage of position trading is that there isn't much demand on the trader's time. Once the trade has been initiated and safeguards have been implemented then it's just a matter of waiting for the desired outcome. The main risk is that the minor fluctuations that they chosen to ignore can, at times, turn into trend reversals, which can have a deleterious affect on their trading accounts. The other drawback is that since their capital will be tied up for prolonged periods of time, they could fall victim to opportunity costs.

Key Takeaways

  • Position trader refers to an individual who holds an investment for an extended period of time with the expectation that it will appreciate in value.
  • Position traders are trend followers.
  • A successful position trader has to identify the entry / exit levels and have a plan in place to control risk, usually via stop-loss levels.

Is Position Trading for You?

All investors and traders should match their trading style with their own personal goals, and each style has its pros and cons. The first consideration must be the reason you are investing in the first place. Are you building a nest egg for the future? Do you plan to make a living trading? Or do you simply enjoy dabbling in the market based on your own research and want to own a piece of a company? And how much time do you want to devote each week or each day to tracking your portfolio?

You must also understand the kind of market in place. Is it a bull market with a strong trend? If so, position trading is ideally suited. However, if it is a bear market, it is not. Also, if the market is flat, moving sideways, and just wiggling around, day trading might have the advantage.