What is Position Trading?

About a week or so ago, I was asked to review the performance results of a new client’s trading portfolio for the Year 2006. After a quick scan of what I saw it was obvious to me that this trader tried to trade everything, and in every different time frame, more often than not to the devastation of his trading account balance.

He had made multiple day trades (a style of trading where all positions are open and closed before the end of the trading day), a number of swing trades (a method of trading where one takes a position for several days to several weeks), and many others that fit into the category of actual long-term investments rather than actual trades, and others still that were held for shorter periods of time.

The first question I asked of him after viewing his results was “What type of trading is your main focus?” He looked at me and replied, “Well, position trading, of course! I find trades to take and open positions in them until I sell them.” The funniest thing about his comment was that he was dead serious; he truly thought he was a position trader.

Needless to say, but to most experienced traders, and even a large portion of beginners, it is obvious that this trader needed some serious help with his trading. Luckily, after some deep discussion I helped him discover that he really needed to find a specific trading style that fit his personality and to stick with only that style and time frame until his trading results improved.

Turns out he prefers swing trading and signed up for our swing trading service that we offer online at SolerInvestments.com, swearing he’ll stick only to this style as we teach him how to trade successfully first before he eventually ventures back into other types of trading such as position trading or day trading.

But, what really is position trading? Using stocks as an example, when you choose to become a position trader, you are essentially saying, “I am going to be buying stocks and holding them for an extended period of time. My plan is to hold this position with a longer term outlook, usually from three months to a year.”

When position trading, you are NOT buying this stock to sell it off later today, you are NOT buying this stock with the hopes of taking profit from it within a couple of days or weeks. You are NOT making a buy and hold investment purchase in this stock and planning to sell it a few years from now.

Position trading is similar to swing trading, but with a longer time horizon. Position traders hold stocks for a time period anywhere from three months to a year. These traders seek to identify stocks where the technical trends and/or the fundamentals analysis of a stock suggests a possible large movement in price is likely to occur, but which may not be fully played out for several months.

As with any type of trading, you must know what you are planning to do with a trade, BEFORE entering the position. If your decision is to be a position trader, don’t let your trades turn into anything but a position trade. I can’t stress how important this is in trading, it really can be the difference between making it in trading or going broke.

The more times you let any trade, position or otherwise, turn into anything other than what you planned it to be, the more times you’re failing to follow your plan, and without a plan you are bound to fail.

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