What Is Position Trading and Is It an Effective Strategy?

When it comes to building wealth, there are a hundred and one different ways to do it. You can invest for the long-term, buying safe growth stocks that you know will reap dividends over the next few decades.

You can buy equities. You can invest in precious metals. You can even invest in cryptocurrencies like bitcoin and dogecoin.

But what’s easily one of the most popular investment strategies is position trading. In this article, we’ll introduce you to the fundamental concepts of position trading strategy, that you can then take and apply to all of the positions you have in your investment portfolio.

What is Position Trading?

Before we start talking about how to do it, let’s make sure to define our terms.

Position trading is a long-term trading strategy. The basic concept of position trading is to conduct fundamental and technical analysis to identify a stock that is currently undervalued, or whose price target far exceeds its current price.

Then, a position trader will commit to that equity, with the understanding that the market may move against it in the short term. In the long term, however, the position trader recognizes that the stock will likely overperform in the long-term and thus change its position in the market.

How to Position Trade

There are two components to position trading: technical analysis and fundamental analysis.

Technical analysis involves looking at the cold, hard metrics associated with a particular stock. This means breaking out your calculator and gaining access to a financial information hub to look at metrics like 50/100/200-day moving averages, price supports and resistances, and trading volume.

The other part is fundamental analysis. This is taking a look at the company’s general position in the market rather than merely its financial metrics. It is much more of a qualitative approach, as it’s hard to quantify exactly where in the market a company falls.

However, when fundamental analysis is done right, you’ll be able to identify great stock picks with excellent leadership and operations teams whom you know will outperform the competition and capture market share in the long term.

Is Position Trading for You?

The last thing to consider before you begin position trading is to consider whether or not it really is for you. Position traders have to understand two things.

Firstly, they have to be okay with not realizing their gains until the long term. Position traders have to be in it for the long haul, or they will quit positions before they make real gains. If you want quick wins, then maybe consider trying to sell dogecoin.

Secondly, at some point, the market will move against your position. You need to have the fortitude not to sell at that point, and to wait for the market to even out and for your technical and fundamental analysis to prove itself.

Position Trading, Made Simple

There you have it. Equipped with this guide, you should now know what position trading is and whether or not it’s a trading strategy you want to employ in your portfolio.

For more info on position trading cryptocurrency and stocks, be sure to check out the rest of the website!