Position Trading: Buy and Hold

Welcome back traders!

There are a variety of trading styles available for the retail trader including:

Scalping, where we look for quick opening and closing of positions in seconds or minutes, and many per day;

Intraday Trading, which simply means that we open and close positions within a trading day;

Swing Trading, where we look for movement to our profit target into the next day or after several days;

and Position Trading, where take a decision on the future movement of an instrument and leave the trade to run for weeks, months, or possibly years, until we achieve our desired profit.

Like any style of trading, Position Trading has advantages and disadvantages.

On the positive side, we do not need to constantly monitor the markets to open, close, or manage trades.

Position traders can basically ignore the short-term ups and downs and retracements of the markets.

Position Trading may give you an opportunity to trade an instrument with higher spreads, that you might have ignored in other styles of trading.

Also, you only pay commission on each position so, with fewer positions, you pay less commission.

Some positions, like a EURUSD short trade, have positive Swaps so you can gain extra profit as trades run day by day.

Some positions, like a UK100 long trade, have a Dividend Adjustment so you can gain extra profit as trades run over longer periods.

Information on these can be found in your client area under DIVIDENDS and SWAPS.

On the negative side, a trader must develop a new sense of patience and not try to “manage” trades as they run over the weeks and months.

Some positions, like a US100 short trade, have a Dividend Adjustment so you will be charged a fee as trades run over longer periods.

Some positions, like an AUDCHF short trade, have negative Swaps so you will have to pay small fees as trades run day by day.

To avoid all this, Valutrades offers Futures contracts on Crude Oil, Gold and many major indices, which carry no swap fees.

Fundamental analysis must always play a part in your decisions.

Let’s say, for example, we hear that the US Federal Reserve wants to raise interest rates next year and we know that corporate tax rises are coming, combined with poor Mexican Gross Domestic Product predictions for the next year, we might consider a long trade on USDMXN.

From the technical side, we see a bear run that lasted months and now we see a reversal.

We could also zoom out to the weekly chart and check our indicators like the Stochastic Oscillator, which is currently showing oversold and our MACD whose signal line has crossed out of the histogram indicating a bullish bias.

This trade could take months to come to fruition. but we have time.

Let’s say, for example, we see a long opportunity on the Chinese A50, which had been on a bull run for a year, but equities have slumped due to government regulations and other factors.

Price action has just hit the 200-Day Simple Moving Average and we might want to wait for a bounce and the Stochastic Oscillator is into oversold territory.

If we feel that this will turn around soon, and if we expect price to return to previous levels, we can place a trade here and our Take Profit could be achieved in a matter of months.

Try to find instruments with Price Action at or near their limits.

Here we have a weekly chart where price has bounced off the upper trend line 2 weeks ago, Stochastics are showing overbought, and price action has the potential to fall back to levels from one, two, and three years ago.

With patience, we may hit our Take Profit within 7 or 8 months.

As with any trading, use your Fundamental and Technical analysis skills, be patient, and try to avoid managing your positions until you have achieved your profit target weeks or months later.

That’s all for now.  Happy trading with Valutrades and we will see you soon.
 
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