Position traders take a long-term outlook on securities, seeking to capitalize on broader price movements over extended periods.
Unlike day traders who focus on short-term fluctuations, position traders employ a buy-and-hold mindset, analyzing fundamental factors to identify attractive investment opportunities.
With a capacity for patience, position trading allows profiting from the inherent uptrends that define secular bull markets.
Fundamental Analysis is Key
Position traders exhaustively research macroeconomic conditions, industry trends, financial statements and management quality looking for companies with runway for future growth.
Statistical fundamentals like P/E ratios, P/S, debt levels, margins and forecasts are studied against historical ranges. Catalysts likely to move the stock in their projected direction are identified.
Technical Analysis Provides Entry Guidance
While fundamental thesis guides stock selection, technical analysis helps time entries. Position traders favor setups with confirmation from moving average crossovers, breakouts of basing patterns, volume spikes or MACD/RSI divergences, thus reducing chances of picking a short-term local top. Stops are placed below recent swing lows to protect profits once in favor.
Position Sizing Balances Concentration and Diversification
Considering each holding’s volatility and conviction level, position sizing aims to balance concentration for optimal returns with diversification to minimize drawdowns.
Backtested simulations on historical data can ascertain ideal weighting and position exposure levels. Overall portfolio beta, standard deviation and Sharpe ratio help assess diversification.
Profit Taking Depends on Circumstances
Gains are captured either when price reaches a target set from analysis, news or technical triggers alter the thesis, fundamentals disappoint expectations or position grows too large relative to others.
Partial profit-taking on large moves and reallocating to new opportunities also helps maximize total returns over time.
With strategic stock selection, technical triggers, sizing rules and long-term perspectives, position trading helps generate market-beating risk-adjusted returns over complete market cycles. Solid fundamental homework and patience are key attributes.
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