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Position Trading in Cryptocurrency: Riding Trends and HODLing for the Long Haul

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Position Trading Cryptocurrency

Position trading is an age-old strategy in the financial market.

Sometimes, this timeless style is called “buy and hold.”

It is suitable for crypto traders who prefer to HODL their positions. They derive their entries from equally long-term charts and fundamental factors.

In fact, as the saying goes, you can “hold” a losing position for just long enough until it becomes profitable. Holding a crypto position without a trading compass can however be a risky job.

After all, it is too easy to lose one’s shirt in cryptocurrency trading. There are far too many examples of folks who got in early, claimed to be masters only for them to blow several accounts in a row.

As it is, cryptocurrency trading is like any other job. It involves hard work, tears, and determination.

Nothing comes in a silver platter.

An ambitious trader, regardless of their trading experience, must always be on the move, practicing and refining their art.

This art doesn’t come after a few trading sessions.

One, anyway, doesn’t become a world-renowned surgeon after watching a few YouTube videos. At the same time, no one can claim to be a professional footballer like Messi after playing a few video games, in the words of one renowned trading guru.

A Deeper Dive into Position Trading

Cryptocurrency traders employ different objectives and trading styles.

They embody various attributes allowing them to comfortably embrace certain styles while rebuffing others.

Of the many available in the trading market is position trading.

So, exactly what is Position trading? And why is this style popular among traders?

As mentioned earlier, Position traders are those who choose to “buy and hold.” The style remains speculative or investing, depending on the side of the coin you are.

Advising their trading are usually fundamental factors and price action in long-term charts—think the weekly and monthly charts. From this, it is easily notable that a position trader must have a deeper understanding of a cryptocurrency project’s fundamentals that influence price over the long term.

At the same time, the trader must be knowledgeable of technical model timings based on various indicators allowing them to quickly get in and out of positions.

Position traders are on the extreme end of the trading spectrum, different from scalping and swing trading strategies.

From previous articles, we mentioned that scalping as a crypto trading style is suitable for day traders who want to only hold their positions within a day.

On the other hand, swing traders would enter and exit trades based on price action in the 4HR or daily chart. Trades, in this trading style, can last for at least two days to two weeks.

Now, position traders, as an alternative type of trading—suitable for traders who aren’t active but interested in the market—are picking up in popularity and adoption.

Unlike swing traders, position trading means entering and exiting a market advised by fundamental events and price action arrangements in longer-term price charts.

Position Traders Are in For The Long-Term

These traders will identify emerging or currently developing trends, positioning themselves for entries.

They will then hold for several weeks, stretching to months, without paying much attention to small market movements in lower time frames.

You wouldn’t find them concerned about minor things like pullbacks or intermediate price fluctuations, say in the daily chart.

Instead, the goal of position traders is to capture major price movements. These are trends that often run for weeks, months, and some instances, years.

The beauty of this trading strategy—explaining why it remains attractive—is that it isn’t time-consuming and stressful—diverging from the day or swing trading, for example.

All that’s required is deep initial research. Once this is completed, a trader can wait for perfect entries based on the weekly or monthly chart.

Afterward, all that remains is holding. And since position traders aren’t concerned much about minor price movements, they wouldn’t be stressed by corrections in lower time frames—instead, they are set for the price.

Accordingly, because they are only concerned about critical price movements and prefer to HODL, position traders do make nominal trades every year.

Best Crypto Technical Indicators for Position Trading

Take note of this: While cryptocurrency technical indicators are not central to a position trader’s strategy—instead they prefer fundamental events such as halving, burning schedules, project upgrades, and more, the following indicators can still play an important role in advising their strategies.

Moving Averages

There are several moving average strategies that a long-term position trader can use. One popular strategy is the moving average crossovers.

Moving Average Cross over Position Trading

In this trading style based purely on moving averages, a position trader utilizes the 50 and 200-period moving averages—in the weekly or monthly chart—for entries and exits. Golden and Death cross being their favorite crossover signal advises whether they can go long or short.

Besides, a position trader can use moving averages to pick out divergences and convergences. These signals are useful. They can indicate a shifting trend—that’s about to begin or end—meaning they can either begin ramping up or slashing down their HODL, in entry or exit.

Although crossovers and divergences trading lag, they can be used in combination with fundamental factors to pick out potentially trending action, benefiting the position trader.

Bollinger Bands (BB)

The Bollinger Bands indicator is one of the best cryptocurrency indicators. In typical trading situations, the indicator is best in identifying shifts in volatility. This is either through expansion or contraction of the upper and lower BB.

Bollinger Bands Position Trading

In addition, the relationship between the bars and either of the bands can aptly measure the strength of the trend.

Overly, the BB comes in handy when picking out shifting trends, effective in combination with other technical indicators.

A squeeze followed by an explosive bar in the weekly or monthly charts can signal the end of consolidation and the beginning of a new trend.

Therefore, based on this new trajectory—and in combination with project-specific fundamental factors—a position trader can adjust entries/exits—beginning or ending their multi-weeks/months HODLing.

The above are some of the common technical indicators for traders looking to “buy and hold.”

Still, there are no hard fast rules. If anything, any indicator of a trader’s choosing can come in handy.

Accordingly, other technical indicators such as MACD, Trading volumes—and their derivatives, and many more can be implemented into any position trader’s style.

After all, as aforementioned, the objective is not to be precise in entries but timely enough to ride the bigger trend.

Advantages and Disadvantages of Position Trading

Position trading is attractive. While the optimal holding period would vary depending on various crypto-specific factors, this trading style affords the trader several advantages including:

  • Position trading cancels out the “noise.” In crypto trading, “noise” is short-term volatility that has no overriding effect on the longer-term trend. Short-term traders—day and swing traders—know very well the effect noise has on trading. More often than not, noise can stop out winning positions, wreaking havoc to a trader’s account. Position trading pays no attention to the noise. Whenever a position is held long enough with eyes on the price—the bigger trend, this strategy becomes effective in nullifying the misleading effects of short-term volatility.
  • The hands-off approach of position trading also means this style is low maintenance. All a trader has to do is to do the initial due diligence during entry. When a trading strategy is already in place, the only task required from the trader is periodically monitoring the position. This doesn’t take much time like swing or day trading styles.
  • Position trading allows the trader to fully capitalize on fundamentally driven trends. These can include halving, key announcements such as the launch of new services, total supply reductions, anticipated token burns, and so forth.

As solid as the strategy is, there are some weak points that critics say subvert the whole process. The disadvantages of position trading include:

  • Exposure to crypto market systemic risks. Unprecedented announcements could, over the long haul, cause severe shocks leading to deep corrections, shaving gains.
  • Position trading is a commitment of which a trader must have a larger initial capital outlay. This effectively freezes out the possibility of traders taking advantage of other opportunities. This limitation of one’s ability to exploit opportunity costs undoes the overall benefits of this style.
  • Because a trader only gets in and out of crypto positions after weeks or months, the trader can auto-compound. This means the profits gained after this extending holding period cannot be quickly plowed back into short-term trends.
  • Psychologically, it needs a position trader to be steel. In cases where the markets are severely impacted causing high volatility, some traders—even after months of holding, may be forced out before the primary trend resumes. This when combined with requirements to tie huge capital in the beginning can be psychologically draining.

Conclusion

Traders’ profiles vary. Even so, the end justifies the means, different trading approaches come in handy as long as traders make money.

Out of this, position trading in cryptocurrency is gaining traction.

The appeal of holding for long is attractive. However, it also tags its weakness like the absence of opportunity cost exploitation and the psychological effect it has on traders. It is not rare for what was first a minor dip to morph into a full-fledged reversal.

Still, there is no one way of trading cryptocurrencies. Position trading is one of them. Profits can be big and the monitoring time minimal. Nonetheless, those who want to dig down from this strategy should be ready to hold for the long term.

Passionate about Blockchain, Crypto, Blockchain, and Bitcoin. Excited of what lies ahead. Advocating adoption. HODLer!

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