Forex Position Trading Strategy: Ultimate Guide

What Is Position Trading？  

Position trading is a long-term trading strategy in which a trader holds a position in a financial instrument, such as a stock, bond, or currency, for an extended period of time, usually several weeks to several months or even years. The idea behind position trading is to capture larger price movements in the market, rather than trying to make a quick profit from short-term price fluctuations.  

Position traders typically use fundamental analysis, such as a companys financial statements and industry trends, to inform their decisions and to determine their entry and exit points. The goal of position trading is to generate steady profits over the long term, rather than seeking quick profits from short-term trades. 

You will succeed in Position Trading if:   

• You think independently. The market is unpredictable, so you have to be able to ignore popular opinion and make your own educated guesses. 

• You understand fundamentals well and have a good grasp of how they will affect your currency pair in the long run. 

• You are resilient to retracements and can weather any difficulties that may arise. 

• You are well-capitalized to handle a market dip of several hundred pips. 

• You arent concerned about waiting for your grand reward. Position trading in forex has the potential to bring in hundreds to thousands of pips. However, if you are someone who quickly becomes eager to exit a trade after a small gain of 50 pips, it may be better for you to consider a more short-term trading approach. 

• You have an extremely calm and patient disposition. 

You will NOT succeed in Position Trading if:  

• You are easily influenced by popular opinions about the market. 

• You are not familiar with the long-term impact of fundamentals on the markets. 

• You dont have patience. Despite being somewhat patient, this might not be the right style for you. When it comes to being this patient, you need to be a Zen master! 

• You dont have enough money to get started. 

• You are not happy when the market goes against you. 

• You want to see your results as soon as possible. Waiting a few days may not bother you, but waiting several months or even years is just too long for you. 

Keep in mind that position trades often require a long-term perspective, as some negative price action is likely to occur over the course of the trade. It is essential to have a well-defined trading plan and a solid risk management strategy in place to ensure success in this approach.

Forex Position Trading Strategy: How does it work？  

Positional trading is a long-term trading approach to the Forex market that involves following a trend for weeks or months, and in some cases, even longer. Traders who use this strategy make their trades based on expectations and then adjust their position based on facts.  

Forex Position trading is also considered a low-frequency approach that aims to achieve substantial gains over a prolonged period of time. This strategy involves opening a small number of trades and is commonly used by both traditional investors and leveraged traders. 

A typical position trade involves buying a currency that is expected to appreciate over the coming months or years, with the goal of generating a return of 10% or more. However, this type of trade often comes with higher risk as traders are targeting larger profit margins. 

In addition to buying currencies, position traders can also short markets. To do this, traders must identify a currency pair that they believe will depreciate over a long period. When shorting markets, it is crucial to have a sufficient margin in the trading account to cover any potential losses. 

Position Trading Forex Example:  

Suppose you are a Forex trader based in the US and some political events have taken place that are expected to impact the value of the USD. To determine the direction the USD is likely to move, you should analyze the situation using the information available to you. 

If you believe that the currency is likely to move in the direction you have predicted, you can begin your long-term Forex trading strategy by opening a USD pair position that aligns with your forecast. However, before doing so, it is important to consider the direction of the second currency in the pair. For a conservative approach, choose a pair where you believe the second currency will be relatively stable. 

For example, if the events impacting your currency pair are related to the Middle East, your analysis might reveal that Japan has limited trade agreements with countries in the region, and the Japanese yen (JPY) has historically been stable. Based on this information, you might conclude that the ideal currency pair for this trade would be USD/JPY. Once you have made your decision, it is important to double-check your expectations and to list all known expected events and their possible outcomes. This comprehensive approach is how you can develop a long-term Forex trading strategy or any other type of long-term currency trading strategy.

How do position traders identify opportunities？ 

Position traders find and capitalize on opportunities by using a combination of technical and fundamental analysis. 

Technical analysis involves using chart patterns, trend lines, and other technical indicators to identify trends and potential price movements. Position traders may look for strong uptrends or downtrends that are likely to persist over the long term, and use this information to inform their trading decisions. 

Fundamental analysis, on the other hand, involves evaluating the economic and political conditions that may impact the value of a currency. Position traders may consider factors such as economic data releases, central bank policy, and geopolitical events when making their decisions. 

To capitalize on opportunities, position traders typically use a combination of both technical and fundamental analysis to make informed trades. They also often employ a risk management strategy to minimize their exposure to potential losses. This may include setting stop-loss orders and using position sizing techniques to control their risk-reward ratio.

7 Best Practices for Long-Term Forex Trading 

There are some general best practices that are commonly followed in Forex positional trading, which focus mainly on risk management and the characteristics of the FX market. By incorporating these guidelines, you can improve your long-term Forex strategy and optimize the results of your long-term trades. 

Dont Trade on Emotions: 

When it comes to positional Forex trading, it is important to keep emotions in check, as they can negatively impact your results. Staying disciplined and sticking to your strategy can be challenging, especially when faced with losing trades or the temptation to hold onto a position for further potential gains. 

It is crucial to have a clear plan for each trade, including predicting the direction and extent of price movements and setting both a profit target and a stop-loss. These should be determined before executing any long-term Forex strategy. 

Use Technical and Fundamental Analysis: 

To be a successful long-term Forex trader, you need to have a good understanding of both technical and fundamental analysis. Technical analysis will help you identify trends, while fundamental analysis will provide insight into the underlying economic and political conditions that may impact the value of a currency. 

By using a combination of technical and fundamental analysis, positional traders can gain a well-rounded view of a currency pair‘s potential for growth or decline, and make informed decisions about when to enter or exit a trade. It is important to note that while technical analysis can provide quick and actionable information, the fundamental analysis offers a longer-term view of a currency’s strength or weakness. 

Leverage should be kept to a minimum: 

It is important to keep your Forex positional trading positions at a manageable leverage in relation to your trading capital. This helps ensure that you are not overexposed to potential losses in the event of market volatility. The foreign exchange market can experience sudden and significant price swings, and it is crucial to be prepared for these movements. 

Maintaining a risk management mindset is also crucial when trading long-term currencies. Putting too much capital into a single trade could result in a significant loss if market conditions unexpectedly change. Instead, allocate a small percentage of your margin to each trade, which will minimize the impact of price movements. A currency pair can move a few hundred pips in a day, so you should also avoid triggering a stop-loss because of these price fluctuations. 

Swaps are important to keep an eye on: 

In Forex positional trading, it‘s important to not only focus on the potential revenues, but also on the actual profits you can make. This is why it’s crucial to carefully consider the swaps, which are fees charged for holding a position overnight. These swaps can have a big impact on your overall profits, so its important to understand them. 

Sometimes, swaps can be positive, which means you‘ll earn money just for holding the position overnight. However, swaps will also be negative, meaning you’ll be charged regardless of the direction of the market. This is why its essential to evaluate the swap expenses and consider using a strategy with a small pip gain and a favorable swap. To successfully employ this strategy, have a good understanding of factors that influence swaps such as interest rate differentials and currency volatility. 

Discover how swap fees and other Forex trading costs work. 

Analyze Effort vs. Return Ratio: 

It is crucial to keep in mind that even with the most effective forex trading strategy, you may not achieve your desired profit level. This can easily occur if you don‘t use enough leverage. Trading with a small amount of capital is likely to yield proportionate returns. Hence, it’s essential to consider the amount of time invested in trading relative to the financial rewards earned. To make the effort-to-return ratio worthwhile, its usually necessary to trade with relatively large amounts of capital. 

One way to evaluate the potential return for your time without risking your capital is by opening a demo account. A demo account allows you to test your trading strategies and get familiar with the market without exposing your funds to risk. You can use the demo account to calculate the estimated profits and losses of your strategies and determine if they are suitable for your needs. 

Keep a Trading Journal: 

Keeping a trading journal is an important aspect of position trading. A trading journal is a record of all your trades, including details such as entry and exit prices, the reasons for entering or exiting a trade, and emotions during the trade. By keeping a trading journal, you can track your progress and assess your performance over time. As a result, you can identify patterns in your trading behavior, identify areas for improvement, and create a more effective trading strategy. 

In addition, a trading journal can also help you stay accountable to your goals and maintain discipline in your trading. By regularly reviewing your trades and noting the results, you can avoid making the same mistakes repeatedly and improve your risk management skills. 

Stay Up-to-date:  

Staying up-to-date with the latest economic and market developments is crucial when engaging in position trading. This is because changes in the global economy, geopolitical events, and other market-moving factors can have a significant impact on the value of currency pairs and other assets that you are trading. Consider subscribing to financial news outlets and regularly reading market analysis reports. 

To make informed trading decisions, it is essential to be aware of current economic indicators, central bank policies, and other key information that can affect market conditions. This information on economic calendar can help you anticipate market movements and make strategic decisions about when to enter or exit a trade.

Popular Forex Position Trading Strategies 

Position traders have a vast array of strategies at their disposal to achieve their desired profits. Now, lets delve into the most commonly used position trading strategies in the foreign exchange market, examining each one in depth. 

1. Support and Resistance Trading Strategy 

Support and resistance levels are useful in determining if an assets price is more likely to decline in a downward trend or rise in an upward trend. Based on this assessment, traders can make informed decisions on whether to open a long position to profit from potential long-term price increases or a short position to benefit from prolonged price drops. 

Support and resistance levels are crucial in analyzing long-term trends, which are important for position traders. There are three key factors to consider when identifying these levels: the historical price, previous levels of support and resistance, and dynamic technical indicators. 

• The historical price is the most reliable source for identifying support and resistance levels, as significant price gains and drops can serve as indicators of future movements.  

• Previous levels of support and resistance can also provide insight into future movements, as a breached support level may turn into a resistance level for future trades.  

• Additionally, certain technical indicators like Fibonacci Retracement can offer dynamic support and resistance levels that change with the assets price. 

A support level is a price at which an asset is unlikely to fall below due to increased buying activity, while the resistance level is the point where the assets price stops rising because of decreased buying activity. If the asset breaks through the resistance level, it could signal that the price will continue to rise to new highs, and if it falls below the support level, it could indicate that the price will continue to drop to new lows. 

2. Breakout Trading Strategy 

Breakout trading involves trying to enter a trade at the beginning of a trend. This strategy is typically used to capitalize on large-scale price movements. 

Like support and resistance trading, a breakout trader typically opens a long position when the stock price rises above the resistance level or enters a short position when the stock price falls below the support level. As a result, it is important for a breakout trader to be able to identify levels of support and resistance accurately. 

In a breakout trading strategy, the trader waits for the price to cross the support or resistance level. When the overhead resistance is broken, the trader enters a long position, and when the price breaks below the support line, the trader enters a short position. If the trader is skilled in identifying periodic support and resistance levels, this trading strategy can be profitable. 

3. Range Trading Strategy 

Range trading can be used as a strategy in forex position trading. This strategy is suitable for traders who prefer to trade in markets that are constantly fluctuating and do not have a clear trend. In the forex market, range trading can be a useful strategy because currency prices can sometimes remain in a defined range for extended periods of time, providing traders with opportunities to take advantage of price fluctuations within that range. 

The range trading strategy involves identifying an overbought or oversold currency pair and buying the oversold currency at or near the support level and selling it at or near the resistance level. This can be done through a long position in the oversold currency or a short position in the overbought currency. The goal is to make small, frequent profits by buying low and selling high within the range. 

In forex position trading, range trading can also be a low-risk strategy as it involves taking advantage of price fluctuations within a defined range, rather than betting on a clear trend. 

4. Pullback and Retracement Trading Strategy 

A pullback is a brief period of market adjustment that occurs when the market is moving upwards. Traders who follow a buy low and sell high strategy will seek out pullbacks as an opportunity to enter the market. However, to minimize the risk of a trend reversal, they use Fibonacci Retracement. 

Fibonacci Retracement assists traders in determining when to initiate or close a trade by plotting lines at 61.8%, 38.2%, and 23.6% on the price chart. These lines serve as markers for support and resistance levels and help traders identify potential trading opportunities. 

5. Carry Trading Strategy 

Carry trading is a strategy that is often used in position trading. This strategy involves borrowing a currency with a low-interest rate and using the funds to purchase a currency with a higher interest rate. The difference between the interest rates, also known as the “carry,” generates a positive return for the trader as long as the exchange rate remains relatively stable. 

Carry trading is considered a long-term investment, with a holding period that can last several months or even years. This is in contrast to day trading, where positions are closed within the same day. 

Carry traders typically focus on major currency pairs, such as the EUR/USD or the USD/JPY, and pay close attention to the interest rate differential between the two currencies. They also monitor the macroeconomic and geopolitical developments that could impact the exchange rate, as well as the central bank policies of the countries involved. 

6. 50-days and 200-days EMA Crossover 

The 50-day and 200-day Exponential Moving Averages (EMA) are considered the most suitable moving averages for positional trading strategies. Traders look for opportunities to trade when the moving average lines cross each other. 

A crossover of the fast-moving average below the slow MA is referred to as a “golden cross” and signals a bullish market trend. On the other hand, a crossover of the 50-day MA above the 200-day MA, known as the “death cross,” indicates a bear market.  

To address moving averages being lagging indicators, traders combine them with Stochastic RSI. Stochastic RSI involves calculating RSI using the stochastic formula. By combining the moving averages and the stochastic RSI on their charts, traders can correct crossover flaws. A stochastic RSI will provide an early indication of a golden cross before the MA crossover takes place. 

When the stochastic RSI crosses above the 20-level, it signals the start of a bullish trend. However, the signal must be confirmed before taking action. To do this, look for the price to break and close above the 200-day EMA. The 200-day EMA is considered a powerful moving average in positional trading, and a close above it is seen as a strong enough signal to act upon. In trades executed using this strategy, the stop-loss is placed just below the most recent swing low.

Disclaimer: This post is from Aximdaily and it is considered a marketing publication and does not constitute investment advice or research. Its content represents the general views of our editors and does not consider individual readers personal circumstances, investment experience, or current financial situation.