An Introduction to Position Trading in Forex

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If you’re interested in the forex markets, have you ever heard about position trading and wondered what all the hoopla was about? So many foreign exchange enthusiasts enjoy the fast pace of the international currency markets, the chance to get into and out of trades quickly, and the 24-hour access to global trading. But, what if you’re more of a long-term investment type of person who enjoys taking positions that last for days, weeks or even months at a time?

Can you still trade currency pairs if your tastes are closer to investing for the long haul? The answer is yes. Forex position traders are those who love to operate in a round-the-clock marketplace, study economic trends, research currency prices, and make estimates about long-term movements in the relative strengths of forex pairs involving the yen, dollar, pound, euro, baht, yuan, and other forms of national monies.

What It Is

The most reputable online brokers like Easymarkets offer tools for account holders who are interested in position trading, which is a practice very similar to equity investing. The big difference is that instead of corporate shares, the financial asset is forex currency pairs. What sets positional tactics apart from most other kinds of foreign exchange buying and selling?

There are three things that make the difference. First, the time-frames tend to be very long, rarely just a day or two. Some positional strategies use years as a baseline unit of time. Additionally, this type of activity calls for a great deal of patience because there’s plenty of waiting involved. Finally, the long-range view means focusing on the fundamentals of the currencies instead of short-term technical indicators or daily price action.

Who Makes a Good Position Trader?

If you want to make purchases and sales of foreign currency pairs based on long-term factors and major economic trends, you must acquire solid research skills and cultivate an attitude of accepting temporary setbacks along the way. In practical terms, that means your account needs to have enough capital to absorb short-term downturns, especially if you’re using leverage.

Techniques for Position Traders

There are dozens of formal and informal position trading approaches in current use. The following three are favorites among both experienced and new positional trading enthusiasts.

  • Breakouts: When prices rise above a resistance level with large volume, traders refer to the move as a breakout and often enter at this precise point. Once a breakout has occurred, it’s usual to look for not just high volume but also a confirmatory signal, like a continued move upward (or downward in the case of a breakout below support).
  • Support and Resistance: Historical levels of price support beneath and resistance above a given price pattern can tell investors where to place entries. A rise above a strong support line can mean a continuation until the value reaches the upper resistance.
  • Moving Averages: By far, the most common tactic is to search for points where 50-day moving averages cross above or below the 200-day moving average, indicating a possible uptrend or downtrend, respectfully.