Position Trading
Position trading holds trades for weeks to months to capture major trends. Learn how it differs from investing, the tools used and how to manage risk.
Position trading is the slowest active trading style. A position trader holds trades for weeks, months and sometimes more than a year, aiming to capture large trends rather than short swings. It combines elements of trading, such as defined entries, exits and stops, with the longer horizon of investing. Many professional trend followers and macro traders work on this timescale.
How position trading works#
| Feature | Typical position trading approach |
|---|---|
| Holding period | Weeks to months, sometimes longer |
| Timeframes | Weekly and daily charts |
| Number of trades | A handful to a few dozen per year |
| Analysis | Trend, fundamentals and macro themes |
| Stops | Wide, based on weekly volatility or major levels |
| Markets | Stocks, ETFs, futures, forex, commodities |
Position trading vs investing#
Position trading and investing both hold for long periods, but they differ in intent and method. See Investing vs Trading.
| Position trading | Long term investing | |
|---|---|---|
| Direction | Long or short | Mostly long |
| Exit plan | Defined stop and exit rules | Often hold indefinitely |
| Focus | Price trend, with fundamentals as support | Business value and income |
| Use of leverage | Sometimes | Usually little or none |
What drives position trades#
Position traders look for forces that can push prices for months:
- Strong price trends on weekly charts. See Trend Following.
- Macro themes such as interest rate cycles, inflation or currency trends. See Macro Trading.
- Fundamental change in a company or industry, such as rising earnings estimates.
- Supply and demand shifts in commodities.
Advantages#
- Little screen time. Weekly reviews are often enough.
- Low cost drag. Few trades and large moves mean costs are small relative to profits.
- Captures big trends, where much of the profit in trend strategies comes from.
- Less noise on weekly charts.
Disadvantages#
- Large drawdowns in open profit. Wide stops mean giving back a chunk of gains before exiting.
- Long periods of no progress when markets are range bound.
- Financing and roll costs for leveraged and futures positions. See Financing and Overnight Costs and Roll Costs.
- Patience is hard. Sitting through pullbacks for months tests discipline.
- Slow feedback. It takes years to collect a large sample of trades.
Risk management for position traders#
- Size small enough for wide stops. A wide stop needs a smaller position to keep risk per trade fixed. See Volatility and ATR-Based Sizing.
- Diversify across markets that are not highly correlated. See Correlation-Adjusted Sizing.
- Use trailing stops to lock in gains as trends extend. See Trailing Stop Orders.
- Watch for event risk such as central bank meetings and elections.
Who position trading suits#
Position trading suits patient people with limited time during the day who can tolerate wide swings in open profit. It is also a natural fit for systematic trend following. Compare all four styles in Day Trading vs Swing Trading.
Frequently asked questions#
What is position trading?#
A long term trading style that holds positions for weeks to months to capture major trends, using weekly and daily charts.
How is position trading different from swing trading?#
Swing trades last days to weeks and target one swing; position trades last weeks to months and aim to ride an entire trend.
Is position trading the same as investing?#
No. Position traders use defined exits and stops and may go short, while investors usually focus on long term business value.
Next, compare the two most popular styles side by side in Day Trading vs Swing Trading.
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Mentioned in
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