All traders are looking for a stress free trading method they can use to make money from the markets. Whilst this method does exist it’s success depends more on the personality traits of the trader, rather than the trading strategy they plan to use.
Position trading is where all of your trades are placed on the higher time-frames charts rather than the lower time frame charts. This type of trading is most commonly used by traders who have day jobs as their unable to be in front of the computer all day watching their trades.
Position trading does hold some really important advantages over other types of trading. We’re going to spend a little bit of time looking at a few of these today. Unfortunately, while position trading does have certain advantages over other trading types, it also has its fair share of disadvantages.
The main one being the trader who plans to start position trading. If you happen to be someone who is impatient, then transitioning from trading lower time frames to trading higher time frames is going to be difficult process for you.
On the higher time frames ( daily, weekly charts ) the market moves very slowly, not only this but the trades you place will take longer to play out and the opportunities for you to make money will be scarce.
The two blue lines marked on the image denominate the beginning of October to November 2015.
As you can see had you been trading pin bars there would have only been two trading opportunities for you to take this entire month ! One of these would have likely lost money on had you been slow to react, whilst the other one ( marked with a tick ) could have made you a fair bit of money if you continued holding it into December.
I want you to focus on the ticks and X’s marked on the image.
These are all the pin bars which appeared during the year. In total, there were 17 pin bars you could have possibly traded, if we divide that by 12, it means there were than less than 2 signals available for you to trade a month ! Thirteen of these pin bars would have likely resulted in successful trades, whereas the other 4 will have lost you money.
It’s clear to see how few trading opportunities there is trading the higher time frames.
The only way to get around this is to trade more currencies.
The more currencies you trade the more opportunities you will have to make money, this does provide a problem though ?
“Which currencies do you trade ?”
I’ve gone through the trouble of making a list of 4 different currencies you can trade to make your portfolio.
EUR/GBP- Lower volatility when compared to other currencies – You’ll make less and lose less.
USD/JPY – Been in a nice trend for the last few years – may see a big down move quite soon which will be good for scaling in.
AUD/USD – Seen a significant downtrend take place for a good few years now – if the trend changes there will be fantastic opportunity for you to make alot of money.
EUR/USD – We could see this develop back into an uptrend – this really depends on the length of the current consolidation.
You can come up with your own portfolio if you like, it’s not just currencies you could trade. Gold, Silver, FTSE, Dow Jones all of these markets are fine to add to your portfolio, although if you do plan on trading these it would be best if you do some research into how each of these markets move as the factors affecting them differ from the factors affecting the exchange rates of currencies.
Coping With Being Bored
Of course position trading, whilst providing many advantage for those who trade this way, also has its disadvantages.
The primary disadvantage position trading has isn’t the method itself, it’s the trader. Traders who do not go to work, but trade over the course of the day have a high chance of encountering problems if they begin position trading. The lack of trading opportunities means traders are prone to becoming bored. When traders get bored, the chance of them making mistakes like deviating from their trading plan increases dramatically, this leads to failed trades, usually ending up with the trader unnecessarily losing money.
It’s very difficult for people who trade during the day to sit around and do nothing.
I think the reason traders find it hard to nothing originates from the beliefs instilled into people during school and work. If you work in a normal job then your always doing something, there must be a task to complete in order for you to be seen as working. Most people do not understand trading is a job far different to any other. Working in trading does not mean your always doing something, for the most part you’ll be nothing, this presents a problem for people who are used to being active. To come from a job where your very active to one where you wont be doing anything for long periods of time means your highly susceptible to becoming impatient.
The lack of action in the markets makes the trader think he should be doing something as this is what he defines as work, this usually means taking traders off the lower time-frames to make up for boredom he feels with the lack of action on the higher time-frames. At this point he unknowingly transitions from being a position trader to being a day trader as he’s now taking trades which are not positional trades, he does this just to pass the time as nothing is happening on the higher time-frames.
You Can Make More Money
Alot of people will disagree with this statement but ultimately it’s true.
Trading higher time frames will allow you to make more money.
The evidence ? Look at the most successful traders in history. Do you really think George Soros sits at his computer all day watching for entries off a 5 minute chart ?
Of course not ! All the really successful traders are position traders. They may not use the same strategies as us ( for the most part I think Soros is more of a macro economic trader) but the frequency of which they take trades puts them into the category of position traders.
It’s frequently said the less trades you place the more profitable you’ll be, any investigation into the profitability of day traders confirm this. Even after placing hundreds of trades over the course of the day they still end up unprofitable.
Position traders on the other hand may only place trades once a week or once a month, but they’ll end up making more money on from one trade than the day traders make for an entire month placing hundreds of trades !
Trading Strategies For Position Trading
Not all trading strategies are suitable for position trading.
The majority of the methods you’ll find on this site are geared towards the active trader who’s got the time to sit in front of his computer all day trading the markets, but there are a few strategies available for you to implement.
Most price action strategies like pin bars and inside bars are perfect for position trading as they only require small chnages to your trading plan in order for you to begin using them on the higher time-frames.
I’ve listed below some of the strategies available on this site that you can use to place positional trades off the higher time-frames.
Becoming a position trader will be different experience for every trader.
If your new to forex trading, it will be easier for you to start position trading than someone who has been trading forex on the lower time-frames for the past few years.
Your mindset has not been exposed to the fast action these lower time-frames traders have gotten used to, therefore you will be more competent with the level of boredom that unfortunately comes with position trading.
Another thing to keep in mind is your trading plan for entering and exiting trades will have to be adapted for use on the higher time-frames. There will be differences between the rules you use to take trades off the lower time-frames and the rules you will need to implement in order to take trades of the higher time-frames.
For the most part, things like trade entries will remain the same, stops and exist however will need to be changed in order to accommodate for the way the market moves on the daily and weekly charts.