​​As a trader, you’ll likely come across different trading strategies you can use to make a profit. However, it’s important to note that not all strategies will work in all market conditions. As such, it’s essential to learn about as many different strategies as possible to find the one (or ones) that work best for you and your portfolio.

One popular strategy that you may come across is called position trading. This article will discuss the position trading strategy and how you can use it when trading options in Singapore.

A position trading strategy is a longer-term approach that takes advantage of more significant swings in the market. Rather than looking for small, daily moves, position traders look to hold onto their trades for weeks or even months at a time and can use the strategy in any market. Still, it is most effective in relatively stable markets that don’t experience large amounts of volatility daily. You can try out this strategy when options trading on this website.

How to use the position trading strategy in options trading in Singapore

Find a market that is suited to position trading

As we mentioned, the position trading strategy works best in relatively stable markets, meaning you’ll want to avoid markets that experience a lot of volatility daily. Some markets well-suited for position trading include Singapore stocks, bonds, and commodities.

Identify the trend

Once you’ve found a market suited to position trading, the next step is identifying the overall trend. You can do this by looking at a longer-term chart and seeing which direction the price has been moving in over time.

It is considered an uptrend if the price generally increases over time. In contrast, it is considered a downtrend if the price decreases over time.

Wait for pullbacks

After identifying the trend, you must wait for a pullback when the market returns from its highs or lows.

Pullbacks allow traders to enter into a trade in the direction of the overall trend at a better price.

Enter your trade

Once you see a pullback, you can enter your trade. If you buy in an uptrend, you’ll want to buy at or near the lows of the pullback. If you’re selling in a downtrend, you’ll want to sell at or near the highs of the pullback.

Place your stop loss

Once you’re in your trade, you’ll want to place your stop loss, the price at which you’ll exit your trade if it goes against you.

For an uptrend, you’ll want to place your stop loss below the lows of the pullback. For a downtrend, you’ll want to place your stop loss above the highs of the pullback.

Set your target price

The last step is to set your target price, which is the price at which you’ll exit your trade if it goes in your favour. Your target price will depend on how far you think the market will move. If you’re expecting a small move, you’ll want to set a small target price. If you’re expecting a significant move, you’ll want to set a hefty target price.

Risks of the position trading strategy

The market may not move as expected

The first risk is that the market may not move as expected. Even if you’ve correctly identified the trend and entered into a trade at a reasonable price, the market may not continue in your favour, which is why it’s essential to always use stop losses when trading.

The market may reverse

Another risk to understand is that the market may reverse direction, meaning that even if you’ve correctly identified the trend and entered a trade, the market may begin moving in the opposite direction.

You may miss out on opportunities

A final risk to be aware of is that you may miss out on trading opportunities. Because position traders hold onto their trades for weeks or months at a time, they may miss out on other trade setups that occur during that time.