With the growing appeal of trading rewards, an increased number of traders have diverted their attention to financial markets. Millions of traders engage in buying and selling thousands of financial securities on exchange platforms daily.
To accommodate the needs of various groups, various trading styles and convenient strategies have come into the picture. Traders opt for a trading method that matches their preferences and requirements. Position trading and swing trading are among the most common methods.
Both strategies hold the exact purpose of generating profits but differ in their methodology. Moreover, no single trading method has conclusive supremacy over the other, as the results depend on a trader’s competency and analyzing power.
Nonetheless, you might be confused about which arrangement suits you better. So, in this article, we have reviewed all the key factors of these trading methods with relative pros and cons.
Position trading
This trading style refers to long-term trading that goes on for months or years. A position trader ignores the daily or weekly price fluctuations and plans to achieve a much larger target. These traders are also known as “trend followers,” as their fundamental principle is to follow a large-term price trend from its very beginning.
Position trading is suitable for the only patient and impassive investors who can wait for a long duration. The targets of position trades are far greater than a day or swing trading setup, reaching up to thousands of pips.
In addition, bullish positions are more convenient for a position trade of stocks or forex pairs than bearish setups. Whereas position trades usually remain unsuccessful in flat or ranging markets due to near-zero price net movement.
A position trader opens only a few deals in a year as they do not depend on trading as their everyday income source. Traders mainly engage in position trading to build up their funds for securing their future financial needs.
Furthermore, position traders utilize technical as well as fundamental analysis before initiating a trade. A careful study of economic factors, historical patterns, and knowledgeable price action prediction is necessary for successful trades. Moreover, they need to make solid decisions and remain firm in even unfavorable market conditions.
Let us look at an example of a position trade. The above chart exhibits the price movement of the US30 index in a one-week time frame. At the start of 2020, this stock index re-initiated its uptrend. Position traders would have entered a bull position on the price retracement to 61.08 Fibonacci. This trade could still be ongoing after a year with long-term targets of thousands of pips.
Pros and cons of the position trading
| Pros | Cons |
It does not require constant attention and monitoring, making it suitable for traders with full-time engagements. | These traders usually ignore minor market noise, but sometimes it can turn into a total trend reversal. It results in losses of trades that were once in profit. |
These traders are free from the stress of sudden market volatility and temporary moves. They remain in their position to seize the long-term trend. | The account money remains bound for months or even years as long as the trade runs. |
It is a type of investment strategy that can deliver huge gains. Unlike short-term trading methods, this strategy has a much broader outlook. | The market keeps changing patterns; hence it can take a long time to achieve substantial price movement needed by a position trader. |
Swing trading
This trading style involves the holding of a trade position for a few days or weeks. Swing traders aim to profit from one swing of the larger and overall market trend. They engage in very few trades in a month but strive to obtain substantial gains with each transaction.
Moreover, after entering a trade, swing traders require relatively less time to monitor their trades than day traders. This type of trading is suitable for traders with patience but cannot wait for months for the completion of their trades.
Swing trading is a popular intermediate trading strategy with a time horizon in the middle of day trading and position trading. Generally, swing traders utilize hourly time frames for executing their trades, including the one-hour or four-hour frame.
Furthermore, swing traders utilize technical analysis techniques to determine the perfect entry points. The most simple technical indicators like moving averages and RSI can be sufficient for skillful and expert traders. They capitalize on short-term trend reversals, upward or downward channels, and support or resistance level triggers.
The above chart shows a GBP/USD pair price movement in the 4-hour time frame. It displays a reversal swing trading setup. As we can see, the price was in an uptrend from the start of October but showed signs of reversal — heads and shoulders — at the end of the month. As anticipated, the price broke the structure, and swing traders can enter a sell position on a successful retest of the broken zone.
Pros and cons of the swing trading
| Pros | Cons |
It can provide considerable gains and high reward trades in a less stressful environment. | These traders can miss out on some profitable setups as they do not monitor the market frequently. |
It does not bind your capital for months or years and generates returns within a few weeks. Hence, it can serve as a regular income source. | These traders are prone to market gaps that sometimes result from news or events during market off time. |
These traders only need to spend a limited time examining their trades. This type of trading does not require continuous and vigorous attention. | These traders may face overnight fees as almost all of the trades run for more than one day. |
Swing trading or position trading: which is more profitable?
Swing and position trading both provide time freedom and are less emotionally taxing. Moreover, both of these methods only consider higher probability and high reward trades. The purpose of their techniques is to generate profits, though the level of profitability depends on a trader’s expertise.
Position trading’s key factor is its extensive perspective of the financial markets and price movements. If you own sufficient patience and plan to develop your investment fund over the years, position trading would suit you.
Moreover, major news events can periodically increase market volatility in the opposite direction. But a position trader needs to remain calm and focus on the long-run profits. Therefore, if you have a strong mind with confidence in your decisions, position trading is right for you.
On the other hand, swing trading provides notable profits with quality trades, mostly achieving the target within a few days. Hence, if you want a consistent cash flow with intermediate trade frequency, swing trading is the answer for you.
Final thoughts
Traders adopt different trading styles and sometimes cross over them according to their feasibility and choice. Swing trading and position trading both have their advantages and provide a less intense trading environment.
Position trades generate wealth over time, whereas swing trades deliver more steady and periodic gains. In a nutshell, your risk tolerance, analytical skills, capital amount, and decision-making power determine your success in the trading arena.