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A position trader is a stock trader that keeps an investment for long-term purposes. Unlike some other types of stock traders, a position trader may hold his position for months, or even years. While other stock traders may be concerned with the short-term fluctuations of the stock market, position traders are not. They believe that successful long-term investments will outweigh the daily movements of the stock market.
Position traders spend much less time conducting trades than other types of stock traders. Unlike other types of trading that require that the trader make on the spot decisions, risking large sums of money on a moment's decision, position traders spend most of their time on fundamental analysis, a way of looking at the economic, social and political forces that affect supply and demand. They make actual trades relatively rarely, only after meticulous consideration.
When supply is low, demand and pricing is generally high. Conversely, if there is an abundance of an item, demand and pricing will probably be lower. Therefore, a trader will use available information to determine when he can buy a stock cheaply, and how long he must hold it until the selling price will be high enough to make a profit. Some of the economic reports a position trader may use to make his trades include the gross domestic product (GDP), employment data and the consumer price index (CPI).
Due to the long-term nature of the trades made by a position trader, the profits can be very large. The risk to reward ratios on position trading is generally very high. In other words, the amount that can be made on each trade far outweighs the amount that could be lost on that same transaction. This means that when a position trader loses, it can easily be minimized. On the other hand, when he wins, his profits are worth any risk that he may have taken.
Position trading has its disadvantages, too. This type of stock trading is not for anyone who may be looking to make a quick profit. He might wait years before he sees a profit from his trade, all the while losing money while he holds his position. Patience is the key when position trading.
The position trader’s polar opposite is the day trader. Day traders make trades based on the market’s daily fluctuations, and may make many trades each day. A day trader may buy a stock and sell that same stock within hours or even minutes. Day trading is highly speculative, and very risky. Position trading, on the other hand, is considered one of least risky ways to trade stocks on the market.