Understanding Position Trading (Part II)
A professional currency trader may be confident that the US Dollar is indicating overall weakness and the Euro is indicating overall strength for the coming six months after performing the fundamental analysis on both economies.
What should be your next step as a position trader? The next step for the position trader would be to open a long position in EUR/USD pair keeping in view the overall strength of Euro and the weakness of US Dollar. This simultaneously provides the position trader with long Euro position and a short US Dollar position.
Going long on Euro and at the same time short on US Dollar, this combined trading position fulfills your fundamental outlook as the position trader on both the currencies. The long term directional bias has been formed by you as the position trader on the basis of fundamental analysis.
However, pinpointing the best time for the trade entry as well as setting risk managed control strategies is best accomplished by using technical analysis. Position trading depends on using fundamental analysis in identifying a profitable position in the currency market and then using technical analysis in setting up the actual trade.
So the position trading uses fundamental analysis in pairing strength with weakness. Now this concept fits extremely well with the forex markets as all currencies are traded in pairs unlike the stock market or for that matter other financial markets.
Trading forex requires a directional commitment on two currencies for each trade, so position trading is ideal for forex trading. Position trading with the strength/weakness model is the most logical fundamental method for approaching long term forex trading.
Buying one currency because it looks like it will become stronger while simultaneously selling another currency because it looks like it will become weaker is a better way to trade as compared to other financial markets.
Your first step as a position trader should be analyze the Central Bank policy statements, economic growth factors of these countries, global economic news etc to identify the currency with the strongest positive future prospects and the currency with the strongest negative future prospects at a given point in time. As a position trader, you will have to do fundamental research and analysis on all major currency pairs.
Suppose you identify USD and CHF as the strongest loser currencies by performing fundamental analysis while EUR and AUD as the strongest gainer currencies in the foreseeable future. Possible currency pairs for position trading could be long EUR/USD, long AUD/CHF, short USD/AUD and short CHF/EUR.
In currency markets, price action never moves in a straight line and is never ever linear. It is always up and down with minor trends superimposed on a major general trend. Swing traders usually ride the minor trends while position traders ride long term general trends. You can enter the trades with the help of technical analysis and hold them as long as they move in the correct direction disregarding minor corrective swings and market noise in position trading.
Position trading maybe the most difficult method of approaching forex trading for the beginners! It requires a great deal of patience and faith in ones own analysis to weather the inevitable swings against the trading position. But if done properly it can be one of the most effective methods of extracting long term profits from the forex markets. - 23223
What should be your next step as a position trader? The next step for the position trader would be to open a long position in EUR/USD pair keeping in view the overall strength of Euro and the weakness of US Dollar. This simultaneously provides the position trader with long Euro position and a short US Dollar position.
Going long on Euro and at the same time short on US Dollar, this combined trading position fulfills your fundamental outlook as the position trader on both the currencies. The long term directional bias has been formed by you as the position trader on the basis of fundamental analysis.
However, pinpointing the best time for the trade entry as well as setting risk managed control strategies is best accomplished by using technical analysis. Position trading depends on using fundamental analysis in identifying a profitable position in the currency market and then using technical analysis in setting up the actual trade.
So the position trading uses fundamental analysis in pairing strength with weakness. Now this concept fits extremely well with the forex markets as all currencies are traded in pairs unlike the stock market or for that matter other financial markets.
Trading forex requires a directional commitment on two currencies for each trade, so position trading is ideal for forex trading. Position trading with the strength/weakness model is the most logical fundamental method for approaching long term forex trading.
Buying one currency because it looks like it will become stronger while simultaneously selling another currency because it looks like it will become weaker is a better way to trade as compared to other financial markets.
Your first step as a position trader should be analyze the Central Bank policy statements, economic growth factors of these countries, global economic news etc to identify the currency with the strongest positive future prospects and the currency with the strongest negative future prospects at a given point in time. As a position trader, you will have to do fundamental research and analysis on all major currency pairs.
Suppose you identify USD and CHF as the strongest loser currencies by performing fundamental analysis while EUR and AUD as the strongest gainer currencies in the foreseeable future. Possible currency pairs for position trading could be long EUR/USD, long AUD/CHF, short USD/AUD and short CHF/EUR.
In currency markets, price action never moves in a straight line and is never ever linear. It is always up and down with minor trends superimposed on a major general trend. Swing traders usually ride the minor trends while position traders ride long term general trends. You can enter the trades with the help of technical analysis and hold them as long as they move in the correct direction disregarding minor corrective swings and market noise in position trading.
Position trading maybe the most difficult method of approaching forex trading for the beginners! It requires a great deal of patience and faith in ones own analysis to weather the inevitable swings against the trading position. But if done properly it can be one of the most effective methods of extracting long term profits from the forex markets. - 23223
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Try Strignano's Forex Signals free. Discover a revolutionary Forex Robot Trading System!
posted by X - Men @ 2:39 AM
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