Principle Guide to Position Trading in Forex
Are you looking for a way to trade forex that suits your lifestyle and goals? Do you want to avoid the stress and hassle of constantly monitoring the market and making quick decisions? If so, position trading in forex might be the perfect strategy for you.
What’s Position Trading in Forex?
Position trading in forex is a type of long-term trading that involves holding a currency pair for months or even years.
Unlike day trading or scalping, position traders aren’t bothered about the short-term fluctuations of the market. They focus on the big picture and the long-term trends that drive the currency values.
The Requirements
Position trading in forex requires a lot of patience, discipline, and research. You need to have a clear vision of what you expect to happen in the market and why.
You also need to have a solid risk management plan and a large enough capital to withstand the volatility of the market.
Position trading in forex can be very rewarding if done correctly. You can benefit from the compounding effect of interest rates, dividends, and rollover fees.
You can also save time and money by avoiding frequent trading fees and commissions. And most importantly, you can enjoy your life without being glued to your screen.
How to Do Position Trading in Forex
Position trading in forex isn’t as complicated as it may seem.
Here are some simple steps to follow:
1) Choose a currency pair with a strong long-term trend.
You can use fundamental analysis, technical analysis, or both to identify the trend.
For example, you can look at the economic, political, and social factors that affect the supply and demand of the currencies.
You can also use indicators, chart patterns, and trend lines to confirm the direction and strength of the trend.
2) Decide on your entry point.
You want to enter the market when the trend is well-established and likely to continue. You can use various tools and techniques to find the optimal entry point, such as:
- Support and resistance levels,
- Fibonacci retracements,
- Moving averages,
- Breakouts, etc.
3) Set your stop loss and take profit levels.
You need to protect your position from unexpected reversals and lock in your profits when the trend reaches your target.
You can use:
- A fixed amount of pips,
- A percentage of your account balance, or
- A trailing stop to adjust your stop loss and take profit levels.
4) Monitor your position periodically.
You don’t need to check your position every day. However, you should keep an eye on it from time to time. You should also stay updated on the news and events that may affect your currency pair.
You may need to adjust your position if the market conditions change significantly.
5) Close your position when the trend ends or reverses.
You can use various signals and indicators to determine when the trend is over or changing direction, such as trend line breaks, moving average crossovers, divergence, etc.
Guide to Position Trading in Forex
Let’s look at an example of position trading in forex using the EUR/USD pair.
In 2017, the EUR/USD pair was in a strong uptrend due to the improving economic outlook in Europe and the weakening dollar.
A position trader could have entered a long position around 1.0500 in January 2017, after a breakout above a resistance level.
The trader could have set a stop loss below 1.0400, which was a previous support level, and a take profit at 1.2500, which was a major psychological level and a potential resistance level.
The trader would have held the position for about a year, during which time the EUR/USD pair rose steadily to reach 1.2500 in January 2018.
The trader would have closed the position at this point, earning 2000 pips or about 20% return on investment.
Are you ready to start trading? Open a demo account today to practice trading.