Guide / Finance / How Forex Traders Use Positions

How Forex Traders Use Positions

Updated on June 4, 2021 | by Austin

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Forex position trading is the most extended form of trading. You can even call it an investment because position traders use the same form of fundamental analysis as investors do. Trading, on the contrary, is usually based on technical analysis, and the goal is to predict the cyclical movements of the asset price, sometimes even profiting from the so-called “market noise.”

A key to successful position trading is collecting as much data about the asset as possible, and the data should be not just about today but about the prospects. Position trading might last for weeks, months, or even years, and the critical thing for it is to enter and exit the trade at the right time. 

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Position trading is usually about the stock market and not Forex because national currencies aren’t typically subject to such steep growth over long periods as stocks. Another reason for that is the abundance of knowledge you need to absorb to position trade on Forex. Learning about a company and its prospects to buy its shares is one thing, but learning about the whole country to figure out the opportunities of its currency is way more complicated. There are reliable forex position trading strategies, though, and if you want them explained thoroughly, with tips and examples – JustForex has it all.

How to Find Profitable Positions

The most important thing for a position trader on Forex is to find a position with promising perspectives. And that’s where the most research has to be done, including the analysis of inflation and unemployment rates, the country’s involvement in local or global conflicts, sanctions, major trade agreements, and alliances. You might also look into the country’s political situation, stability of its political system, possible results of future elections, and what their winners might want to change in the existing system. When this all is figured out, and you’ve found a currency pair you want to trade – it’s the strategy time.

How to Use Forex Positions

There are four basic Forex position trading strategies, and we’ll briefly go through them all here.

  1. Breakout trader’s goal is to catch the new trend at the very beginning and open a position at its early stages to maximize the profit. You can play this game both long and short, depending on whether it is a support or resistance level broken.
  2. Support and Resistance trading is based on a belief that the support and resistance levels won’t be broken during the current cycle. Therefore, traders buy when the price is as close to the support level as possible and sell when approaching the resistance level.
  3. Pullback trading means that you lock your profits each time the price dips a little before continuing its upward trend. These setbacks happen all the time, and many traders ignore them, aiming at big profits in the end. Pullback trading is a bit less profitable since these dips don’t go all the way down to the support level, but they’re less risky because you’re locking profits more frequently.
  4. Moving Averages trend trading is used for the long-term positions and usually is based on 50- and 200-day moving averages. The drawback of this form of trading is the long estimated timeframe for investment return.

Each of these four strategies has many minor sub-strategies, and you might want to study them thoroughly before employing any one of them. They have one thing in common: you have to put a stop-loss every time. We wish you always to have a stop-loss order and never see it triggered.

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