Position Trading and Technical Analysis for FX Trading

By Matthew M. Lockett Dec 18, 2023

Position trading and technical analysis are two of the most popular trading strategies utilized by the hundreds of thousands of forex traders today. In this article, we will explore how these two strategies work, the advantages and disadvantages of each, and the ways in which they complement each other.

Position Trading Overview

Position trading is a strategy used by active traders to identify and capture profitable buy and sell signals. It is most popular for a trader to use when looking to take a long term approach to the markets. Position traders aim to identify potential market behavior patterns and capture the entire market move instead of just profiting from a single trade. This strategy can be best used in markets with predictable and stable movements, such as forex or gold.

It’s important to remember that position trading is centered on the long-term, and relies on the anticipation of a large, profitable move. As such, position traders must use technical analysis techniques such as support/resistance levels, trend lines, and other forms of analysis in order to make educated trading decisions. Position trading also requires ample knowledge and patience, as a large move could take weeks or even months to enter and complete.

Position traders benefit from overnight margins and other scenarios where leverage isn’t necessary. These traders typically utilize stop-loss orders, as well as mental stops determined by the trader to specific points of entry and exit. This allows a trader to pre-define their risk in the trade with each order.

Technical Analysis Overview

Technical analysis is a trading strategy used by active traders to identify market trends. This strategy relies heavily on charts, graphs, and other forms of technical analysis to predict alterative price movements. Technical analysis assumes that current market prices reflect all available information, and that by taking a look at previously established trends, analysts can project possible future movements. This analysis can be done using any number of indicators such as volume, price, and MACD.

Technical analysis is good for traders who want to actively participate in the market. It takes the guesswork out of trading decisions and puts the focus on hard data points. It keeps traders mindful of potential entry points and exit points, and is thought to be a reliable means of entering and exiting positions. However, it should be noted that technical analysis is far from perfect. Many different traders use different strategies and indicators, and not all of them are necessarily effective.

Position Trading and Technical Analysis Review

Position trading and technical analysis are two of the most widely used strategies for active traders. Both have a set of advantages and their own inherent risks. Position trading is ideal for long-term market moves, as it allows traders to enter into positions with overnight margins. Technical analysis, on the other hand, requires traders to be more active and is better-suited to short-term market plays.

Technical analysis is advantageous because it shows traders where certain price levels may exist, as well as allows them to take advantage of short-term movements. However, timing is key when using technical analysis to gain a profit. If used incorrectly, technical analysis can lead to large losses.

Position trading, meanwhile, carries with it the risk of its own. If a market reverses, it is possible for a trader to experience large losses due to the large position that they may have taken. In addition, trading with large overnight margins requires the trader to have considerable amounts of capital in order to begin.

Because of the inherent risks that position trading and technical analysis both carry, it is important that a trader first thoroughly evaluate and understand both methods before entering into any trades. It is also important to remember that there is no one-size-fits-all strategy that will guarantee success, and in order to become successful, traders must use the strategies and techniques that best match their own individual strengths, weaknesses, and objectives.

Related Post