Are you considering position trading?
Position trading is a technique of trading that involves holding trades for such long duration as months or even years. The goal of Position trading is to profit from the major price swings and longer-term trends.
In this article, I will show you 7 Best Position Trading Strategies that you need to try in 2020:-
- Moving Average Strategy.
- Support and Resistance Strategy.
- Breakout Strategy.
- Retracement Strategy.
- Range Trading Strategy.
- Directional Bias Strategy.
- Candlestick Patterns Strategy.
1. Moving Average Strategy.
Moving Average Strategy is one of the best forex trading strategies there is. They have been used over time to develop basic trading strategies – some of which we are currently using.
Often, two moving averages, one with a shorter and one with a longer period are commonly applied to form simple trading strategies. In which case, exponential Moving Averages (EMAs) are preferred over other types of moving averages for their reference to the most recent data.
When using the EMA strategy;
- EMA 50 crosses over EMA 200 from below upwards.
- The price keeps trending above EMA 50.
- The RSI shows an oversold condition, a bullish divergence or convergence, or any hint to a rise in the price.
The reason for buying is because the price seems to have established an upward trend which is likely to last for long enough to profit you big time.
- EMA 50 crosses over EMA 200 from above downwards.
- The price keeps trending below EMA 50.
- The RSI shows an overbought condition, a bearish divergence or convergence or any hint to a price fall.
The reason for selling is that the price seems to have established a strong downtrend likely to rally for quite some time.
2. Support and Resistance Strategy.
This is a simple forex trading strategy.
Support and Resistance are certain predetermined levels of the price of an asset at which the price tends to stop and reverse.
Support is a low level on the price chart where prices don’t tend to go down past but pauses and reverses upwards.
Resistance on the other hand is a high level on the price chart where prices don’t tend to go past upwards but pause and reverse downwards.
Combine Support and Resistance with the Moving Average Convergence and Divergence (MACD) for better results.
Buy when these conditions are met:-
- The Price is at the support level and has tested the level severally without breaking it downwards.
- The MACD is showing an oversold condition / a bullish divergence or convergence/crossover of its moving averages above the zero line as well as the histogram bars shifting from below to above the zero line.
Sell when these conditions are met.
- The Price is at the resistance level and has tested the level several times without breaking it upwards.
- The MACD is showing an overbought condition / a bearish divergence or convergence/crossover of its moving averages below the zero line as well as the histogram bars shifting from above to below the zero line.
3. Breakout Strategy.
This is one of the common forex trading strategies.
Prices of assets move in certain patterns and channels whose limits can be determined. By observing, determine a level where the price does not tend to go past upwards and downwards based on past action of the price.
Combine Breakouts with a technical indicator like the Relative Strength Index (RSI) for better results.
Buy if all the conditions below are met:-
- The price has broken the upper predetermined limit upwards.
- The price has tested the new level several times without breaking it back downwards.
- RSI may be showing a reading below its lower limit (Oversold) or an increase in value from below upwards.
Sell after all these conditions are met:-
- The price has broken the lower predetermined limit downwards.
- The price has tested the new level severally without breaking it back upwards.
- RSI may be showing a reading above its upper limit (Overbought) or a decrease in value from above downwards.
4. Retracement Strategy.
This is one of the common forex trading strategies which relies on identifying retracements in order to sell or buy after they occur.
In Uptrends and Downtrends, the price is interrupted by attempts to reverse in the opposite direction.
These counter-trend movements are what we call retracements.
The price rallies in the opposite direction for a short while then the primary trend resumes, whether Uptrend or Downtrend.
Uptrends are interrupted by downward (bullish) retracements before the uptrend resumes while Downtrends are interrupted by upward (bearish) retracements before the downtrend resumes.
A bullish (downward) retracement occurs when the price on an Uptrend tends to reverse downwards for a short while.
Consecutive bearish candlesticks followed by a bullish one that closes above the high of last retracement candlestick will give a Buy signal.
A bearish (upward) retracement occurs when the price on a Downtrend tends to reverse upwards for a short while.
Consecutive bullish candlesticks followed by a bearish one that closes below the low last retracement candlestick will give a Sell signal.
5. Range Trading Strategy.
This is one of the best forex trading strategies to use in ranging markets.
Not all times the price of an asset shows an uptrend or a downtrend.
Sometimes there will be a sideways trend and the price will seem to be shifting up and down about a certain level and within certain levels.
The range trading strategy relies so much on the identification of Oversold and Overbought levels of the price.
Identification of such levels can be done by the use of the Relative Strength Index (RSI) or the Moving Average Convergence and Divergence (MACD).
Enter a Buy Position if either of these happens:-
- The RSI is showing a reading below its lower limit (Oversold).
- The MACD is showing a reading below -100 or -200 (Oversold).
The reason you buy is that, at an oversold level, buyers are bound to swing into action because sellers seem to have exhausted almost all their recourses.
Enter a Sell Position if either of these happens:-
- The RSI is showing a reading above its upper limit (Overbought).
- The MACD is showing a reading above 100 or 200 (Overbought).
The reason for selling is that at an overbought level, sellers are expected to start dominating as buyers seem to be exhausted in terms of resources.
6. Directional Bias Strategy.
Directional Bias Strategy is a simple forex trading strategy.
It is a trading technique that involves identifying a primary trend and then confirming such a trend direction using various analytical tools.
If the direction of the trend is confirmed successfully, you then have established a Directional Bias. You can, therefore, place trades in that direction without having to react emotionally to the market.
An upward Directional Bias is identified by a price action that posts higher highs and lows.
It is confirmed by upward moving average crossovers, a rise in the value of momentum indicators and the price trending above certain moving averages.
Once you identify and confirm and upward Directional Bias, enter a Buy position.
A downward Directional Bias is identified by a price action which posts lower highs and lows. It is confirmed by downward-moving average crossovers, a fall in the value of momentum indicators and the price trending below certain moving averages.
After identifying and confirming a downward Directional Bias, enter a Sell position.
7. Candlestick Patterns Strategy.
Price in candlestick charts moves in patterns called candlestick patterns. Candlesticks patterns can form some of the best forex trading strategies.
Candlestick pattern alone, however, may not be enough to make conclusive trading decisions.
Commodity Channel Index (CCI), Relative Strength Index (RSI), Moving Average Convergence, and Divergence (MACD) and Stochastic Oscillator can be used in conjunction with Candlestick patterns for confirmation.
The following are common bullish candlestick patterns. They mostly occur at the end of a downtrend to signal a trend reversal upwards (Buy);
- Bullish engulfing – A pattern formed of two candlesticks. A short bearish candlestick which is completely engulfed or covered by a long bullish candlestick.
- Piercing line – This is a two-candlestick pattern. A long bearish candlestick is followed by a long bullish candlestick which gaps down to open lower and closes at or above half of the bearish candlestick.
The following are common bearish candlestick patterns. They mostly occur at the end of an uptrend to signal a trend reversal downwards (Sell);
- Bearish engulfing – A two candlestick pattern at the end of an Uptrend. The first is a short-bodied bullish candlestick and is engulfed or covered by a long bearish candlestick.
- Three black crows – Three consecutive bearish candlesticks with short or no tails. Each opens at the same price as the previous but each close is pushed lower and lower.