Position Traders

A position trader is someone who holds an investment—a stock, a currency pair, a futures contract—for weeks, months, or even years, aiming to profit from a large, sustained price move rather than the small wiggles that happen day to day. The holding period is the key thing that separates this style from most of what happens in a trading chatroom: a position trader might place fewer than a dozen trades in an entire year.

The approach works by identifying a trend early—say, a stock breaking out of a long consolidation on rising demand—and then buying and simply sitting through the normal ups and downs that follow, on the belief that the bigger move still has a long way to run. Because the timeframe is so long, position traders lean more on fundamentals (earnings growth, interest rates, supply and demand for a commodity) and on long-term chart patterns than on the minute-by-minute price action that short-term traders watch.

The nuance that trips people up is that "position trader" is not just "someone who holds a long-term investment," which sounds like a buy-and-hold investor. The difference is that a position trader still has an exit plan: a level where the original trend thesis is proven wrong, usually enforced with a stop-loss order (a standing instruction to sell automatically if price falls to a certain point). A buy-and-hold investor often has no such plan and may hold through any decline. A position trader also isn't the same as a swing trader, who holds for days to a couple of weeks—position trading sits a rung above that on the time scale.

Because trades are infrequent and price is given room to breathe, position sizing (how much capital goes into any one trade) and the placement of that stop-loss matter enormously; a stop set too tight will get shaken out by ordinary volatility long before the real trend has a chance to fail.