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  • Position Trading

    Position trading is really long-term investing rather than the shorter-term speculation implicit in day, swing and trend trading. Typically, investors look to identify and then evaluate specific equities and bonds which may outperform the wider market. Position Trading places a greater emphasis on fundamental analysis than done with other trading styles.

    Position traders look at the larger or macro-economic environment and try to identify where we are on the business cycle. Then they drill down and analyse individual companies within sectors. This may include such factors as the management team, where a company operates geographically and whether or not there are barriers to entry for new competitors, particularly if the company has built its business on innovation. If analysing a specific company the position trader will look at the financials, including the balance sheet and profit and loss account.

    Position traders will want to ensure that the company is financially secure and isn’t loaded up on debt – at least when compared to rivals within the same sector. They will want to ensure that that the company’s stock isn’t overpriced against other stocks in the same sector and also against the wider market in general. Typically, investors will look at the price per share/earnings per share (P/E) ratio to see if the company is fairly valued.

    The Position trader will attempt to ensure that a particular company is well-run and financially sound. It is only then that the Position Trader looks at charts and technical indicators to establish entry, exit and stop levels for the trade. If any of these don’t add up then the position trader will hold off and wait for better trading opportunities elsewhere.

    Position traders tend not to worry about short-term fluctuations and instead try to profit from the longer-term trends. This has the advantage that once the trade is entered it doesn’t require constant monitoring. It sounds easy but position trading isn’t for everyone. A position trader has to be patient enough to sit back and wait for a trade to play out. They must have the discipline to cope with a position that turns against them (in the short-term) bearing in mind the reasons for entering the trade in the first place.

    However, the position trader must also be ready to acknowledge when a trade has gone wrong, typically when there is a change in the fundamentals underlying the original decision to take the position. As with all trading, careful risk and money management is vital.

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