Position Trading Vs. Swing Trading - What's the Difference

Posted by swapnil waikar on

Positional Trading & Swing Trading

The trading strategy you select for the financial markets should be based on your trading objectives, market conditions, assets to be sold, and the strategy's inherent risks. However, in a market where over 170 different currencies are traded 24 hours a day, a tried-and-true strategy is essential. Position and swing trading are two of the most common trading strategies in the forex market.

The amount of time it takes to purchase and sell an asset is the main distinction between them. Swing trading includes a period of a few days, while position trading is more like a "buy-and-hold" strategy, where traders can hold positions for years. Of course, each has its own set of advantages and disadvantages.

Position Trading

This is a long-term trading strategy in which traders keep positions for months, if not years, at a time. Some may argue that this strategy isn't suitable for active trading, but advanced traders argue otherwise. The strategy's timeframes vary from daily to monthly. There are also a number of technical measures that can be used to determine the price trend's course. Long-term results are essential to position traders. Trading decisions are unaffected by daily price fluctuations or short-term market corrections, which may reverse price patterns. Over the short term, such traders cause their positions to fluctuate in lockstep with general market trends.

To map the outcomes over the long term, position traders heavily depend on fundamental analysis. They use long-term historical market patterns to determine which assets can provide them with the best financial results. They often employ technical research methods in order to determine the best entry and exit points. Furthermore, technological resources allow them to spot long-term patterns and possible reversal points.

There are two options for accomplishing this:

1. Invest in assets that have a lot of trending potential but haven't started trending yet.
2. Invest in assets that have already started trending and are expected to continue trending for a long time.

The 200-day Moving Average, oscillating indicators like MACD (Moving Average Convergence Divergence), and the Relative Strength Index are some of the most commonly used analytical methods for position trading (RSI). Some traders confuse position trading with trend trading, but the latter varies in that it relies heavily on technical analysis, while the former relies heavily on fundamental analysis.

Swing Trading 

Swing traders profit from buying and selling at the lows and peaks of an aggregate trend's interim lows and highs. Swing trading, in comparison to position trading, is a more medium-term strategy. Positions are usually only served for a few days or a week at most. Swing trading, on the other hand, is a slower technique than day trading. Day traders and swing traders are often confused, but note that day traders close positions in a matter of minutes.

Swing trading is used on sedentary markets, where asset prices rise and fall in wave-like patterns at regular intervals, with no long-term bullish or bearish trend. In fact, substantial price movement in one direction would reduce the profitability of swing trading. Usually, the timeframes selected are 60 minutes, 24 hours, and 48 hours.

The main goal is to capture the market's "swing," so traders typically:

1. Invest in support and resistance.
2. Trade the moving average's bounce.
3. Trade pull-outs and break-outs.

In contrast to position trading, technical analysis is heavily used. These metrics are used to determine whether or not some assets have traction and whether or not markets are ranging. As a result, learning how to use Japanese Candlestick Patterns and Support & Resistance levels is a good idea. Swing traders often use technical indicators such as Fibonacci Retracement and On-Balance Volume.

Which is the better option?

Before deciding on a trading plan, it's a good idea to figure out whether you prefer short or long-term targets. For example, if you want to save for retirement, you might prefer position trading because it allows you enough time to reach your investment goals without requiring you to take on riskier short-term positions.

Swing trading is more viable for skilled traders than position trading, since the latter provides less opportunities for profit. The state of the economy must also be investigated. Taking a long-term bet when the market is in a full-fledged bullish trend could be risky. At some point, the bullish trend will come to an end, and market corrections may eat into the profits made when the asset was purchased.

The stock markets are notoriously unpredictably volatile. As a result, thorough analysis is often advised before implementing any trading strategy. Choose a broker with a wealth of educational tools and excellent customer service to assist you in making well-informed decisions. Furthermore, regardless of which strategy you select, the importance of proper risk management through stop-losses and take-profit cannot be overstated.