Long-term position trading: A practical guide for patient investors

Understanding Position Trading from Practice

Position trading represents a different approach from the hectic pace of daily trading. It involves maintaining active positions for weeks or even months, aiming to capture significant market movements. This style does not seek to exploit minor fluctuations but waits for substantial movements that generate notable returns.

The central philosophy of position trading lies in identifying strong trends and following them until their natural conclusion. This is where its greatest strength resides: when you have a clear trend marked in an asset, results tend to be exceptional.

Characteristics that Define This Strategy

Fewer trades, lower commissions

Unlike other styles, position trading involves placing very few orders. This represents a significant advantage in terms of costs. You won’t have to worry constantly about swap (overnight financing fee) or accumulating multiple entry and exit commissions.

Stress management and patience

A position trader does not suffer from daily price movements. Your capital is never affected until you close the position, regardless of how many days you are in the red. This requires considerable patience but frees your mind from the constant anxiety generated by short-term trading.

Strategic, not obsessive, vigilance

You don’t need to be glued to the screen for hours. The important thing is to analyze the asset well before entering, establish correct levels of take profit and stop loss, and perform periodic reviews to detect trend changes or news that could impact your trade.

Most Suitable Assets for Position Trading

Established company stocks

Stable organizations’ stocks are ideal for this strategy. Companies like Amazon, Google, Apple, Microsoft, Coca-Cola, and Walmart have a long-term growth history. Coca-Cola, for example, has shown a clear bullish trend since 2016, dropping to $36 during the pandemic but recovering to currently trade at $63. This resilience is precisely what you look for in position trading.

You can also take more risk with innovative companies like Tesla or Uber if your analysis convinces you they will have significantly higher value in the future.

Stock indices

Indices like the S&P500 (US500) encompass the 500 largest U.S. companies. Their diversified nature makes them safer: it’s unlikely all will fall simultaneously. The S&P500 has shown a clear historical growth trend, only retreating during major events such as the pandemic or geopolitical conflicts. An additional bonus is that many indices generate dividends regularly.

Currencies and cryptocurrencies: special considerations

Currencies are generally not recommended. The USDJPY in 2021, for example, fluctuated between 107.175 and 112.043 over 225 days (less than 500 pips). Holding an open position within this range for months would be counterproductive due to the daily swap.

Cryptocurrencies present extreme volatility and high spreads. However, if you bought 0.01 Bitcoin in early September 2020, you would have obtained $544.02 in March 2021. But if you bought in October of that year, by July 2022, you would have been losing $508.07 (an experienced trader would have bought at $68,000 with a stop loss at $63,000, limiting loss to $50). The uncertainty in this new market makes it difficult to reliably use indicators and patterns.

Applying Position Trading in Practice: S&P500 Case

Strategic entry

After the pandemic, the S&P500 dropped to $2,200 in March 2020. After observing its recovery, on June 10, the 50-day EMA crossed the 200-day EMA (technical confluence). Combining Fibonacci (retracement 0.618 from highs and lows) and a resistance turned support, the ideal entry zone was identified around $2,950 in June 2020.

Management and exit

The position was held for 1 year and 10 months. In late April 2022, the EMAs crossed again downward, coinciding with FOMC uncertainty and trade conflicts. The exit was executed around $4,200.

Trade results:

• Entry: $2,950 (June 12, 2020)
• Exit: $4,200 (April 30, 2022)
• Pip gains: 1,250
• Stop loss placed at: $2,750 (200 pips maximum loss)
• Net return: $1,250 – swap – commissions + dividends

With 1 lot: profit of $1,250 before costs and commissions. With 0.2 lots: profit of $250 before costs and commissions.

Risk Management: The True Key to Success

Risk-reward ratio 3:1

A trader who entered at $2,950 and set a stop loss at $2,770 risks 180 pips. With 1 lot, the maximum loss would be $180. To maintain a 3:1 ratio, they should aim to gain 540 pips, placing the take profit at $3,490 (reached on August 26, 2020).

Position sizing

If you have 3 open orders and all lose $180, you would need a minimum balance of $540. The correct process is:

1. Make an initial deposit into your real account
2. Define the risk percentage per trade
3. Analyze the trade before executing
4. Convert pips to lots to know the exact size

Practical example:

• Deposit: $100
• Risk per trade: 5% ($5)
• Stop loss: 200 pips
• Take profit: 600 pips
• Required lots: 0.02-0.03 (0.02 × 200 = $4)
• Result: Potential gains of $12 or losses of $4 (risk-reward ratio 3:1)

Concrete Advantages of Position Trading

✅ More secure money management when applied correctly ✅ No need for endless hours analyzing charts ✅ Reduced commissions due to fewer trades ✅ Profitable trades with consistent returns in stable trends ✅ Dividend generation in stocks and indices during the open position

Risks and Challenges to Consider

❌ Slow gains testing the trader’s patience ❌ Vulnerability to unexpected events (economic crises, regulatory changes) ❌ Need for psychological control to tolerate temporary setbacks ❌ Requires substantial capital, as pips gained or lost are larger ❌ Capital immobilized while the position is open ❌ Margin call risk if not managed properly

Getting Started with Position Trading: Roadmap

Before investing real money:

• Verify your ability to manage operational accounting
• Open a demo account and experiment with different assets
• Familiarize yourself with indicators and charting tools
• Study fundamental analysis of the selected market

Real-time operations:

• Use daily, weekly, or monthly candles for main analysis
• Refine entry on 1-hour candles if seeking precision
• Set targets with a risk-reward ratio of 3:1
• Wait for confirmation of multiple confluences before entering
• Monitor the position at least once daily
• Trail the stop loss above the entry price after significant advances
• Allow some trades to temporarily go into red without closing

With discipline in capital management, solid training in technical and fundamental analysis, and patience to follow trends, position trading offers an exceptional balance between profitability and operational stress. The key is understanding that the market rewards those who can wait, not those seeking quick gains.