The Position Trader – What Forex Style Suits You?
A position trader seeks to profit from the long-term prediction of trends in their respective area of investment. This type of market participant is more interested in structural movements of the markets rather than the short-term movements that would interest a day trader.
Famous Position Trader:
Rule number one of investing is never lose money. Rule number two is never forget rule number one
- Warren Buffett
Philanthropist and one of the wealthiest men in the world, entered the foreign currency market as a positional trader in 2002. In 2005 Buffett placed a bet that the USD would decline in that year.
In 2005 the dollar had a great year, which meant Buffett lost $1 Billion.
As the gamble began 3 years prior, Buffett would have still made close to $2 Billion overall.
Warren is known for his strong, negative stance on Gold as an investment as well as a large sell off of United States Dollars in 2005. Fundamental analysis showed inflating interest rates were significantly diminishing the earning power of holding long-term currency contracts.
5 Facts About Position Trading
1) Long Term Strategy
Strategies followed by position traders may reach weeks, months, or even years into the future. They will have a long-term vision for the value of a currency and not be concerned with daily price fluctuations.
2) Not For Low Levels Of Capital
As the strategy is longer term position traders will need to withstand the potential for significant short-term adverse price movements against them. High levels of leverage are not prudent in these situations; as losses from unfavourable moves will quickly impair capital levels.
3) Fundamental Analysis
Thorough research and understanding of the fundament factors driving the exchange rate are paramount as these factors are likely to have a significant bearing on the direction of movement of the exchange rate over time.
4) Combining Styles
A popular way to pursue profits is to combine position trading with shorter term trading styles. The short term trading strategy can be used to enhance the overall return on the longer-term trade position by trading the intra-day price volatility.
5) Vision To See Through Market Noise
Position traders need conviction in their view to ignore random market fluctuations, which may flush out less confident position holders during adverse price swings. Traders should always have a firm exit plan should the market continue against their position over a lengthy period.
Position Trading On MahiFX
1) MahiFX News
Step one is to look for any news that might be getting priced in.
2) MahiFX Books
Our unique use of “Books” allows traders to easily separate long term positional trades from short-term trading.
3) MahiFX Charts
Our charting section gives users the choice of many trend following indicators to help them position for the long-term trend.
Sign up to our demo account now to test out your trading skills with $100K of demo money!
The content of this blog post can be seen on our interactive infographic What Forex Trading Style Suits You?
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