Long-term trading strategies

If you're looking to generate returns from a few highly profitable trades, you likely fall into the category of medium- or long-term traders. There are many strategies for this approach, but in this article, we’ll focus on two of the most common ones: position trading and swing trading.

1. What is position trading?

2. How do position traders identify opportunities?

3. What is swing trading?

4. How do swing traders find opportunities?

What is position trading?

Position trading is a strategy focused on opening a limited number of trades aimed at achieving consistent profits over an extended period. This strategy serves as the foundation of traditional investing, but it is also popular among leveraged traders.

• Type: Position trading

• Timeframe: Medium to long-term

• Method for finding trades: Primarily fundamental analysis

• Required skills: Patience, emotional discipline

A typical trade in this strategy might involve buying shares of a company expected to grow over the coming months or years. Profits may not materialize immediately, with a target return of 10% or higher. This approach can involve greater risk per trade as it targets broader profit margins.

Leveraged traders can also short markets as part of a position strategy. This requires identifying assets expected to decline in value over the long term.

For those using leverage, quarterly forward trades can help avoid overnight financing costs. However, traders must ensure they maintain sufficient margin in their accounts to cover adverse market movements. Since positions are held for extended periods, temporary price declines are to be expected.

How do position traders identify opportunities?

Position traders look for markets with long-term growth potential. They typically rely on fundamental analysis, examining data and facts surrounding specific assets to identify undervalued opportunities.

Even successful trades may require time to achieve the desired return, with potential price volatility along the way. Therefore, position traders need to remain calm and patient.

Comparison: Position trading vs. Trend trading

Trend trading is a popular alternative to position trading. Instead of searching for undervalued assets, trend traders aim to identify emerging market trends and "ride" these trends for as long as they last.

• Analysis: Trend trading relies on technical analysis to detect higher highs or lower lows, signaling a new trend.

• Styles: This strategy can target both short-term and long-term trends, offering flexibility for different trading timeframes.

Both strategies have their merits and can cater to different types of traders, depending on their preferences and goals.

What is swing trading?

Swing trading is a strategy aimed at capitalizing on price fluctuations within broader market movements. Swing traders execute trades more frequently than position traders, holding positions for only a few days to weeks.

• Type: Swing trading

• Timeframe: Medium-Term

• Method for finding trades: Primarily Technical Analysis

• Required skills: Proficiency in Technical Indicators

Swing traders aim to profit from smaller segments of larger market trends. Even during strong bullish or bearish trends, most assets experience significant price action against the prevailing trend. Swing trading leverages these fluctuations to generate returns.

Example of swing trading:

Imagine that the FTSE 100 oscillates between 6000 and 6400 points over several months. This movement would rarely appear as a straight line on a chart. Instead, there would be days or weeks of downward action due to competition between buyers and sellers.

Swing traders seek to capitalize on these smaller movements, opening positions at the start of a "swing" or minor trend and keeping them open until the trend reverses.

How do swing traders find opportunities?

Like trend trading, swing trading often involves using technical indicators to decide when to enter and exit positions. A common technique is identifying support and resistance areas where prices typically reverse direction.