Position Trading Crypto: Long and Short Strategies Explained

Last Updated: 14 October, 2023
8 min read

position trading crypto trader

Position trading is a long-term crypto trading strategy where trades are typically held open for weeks, months or even years. The goal is to profit from broader moves in the market rather than short-term volatility. Position trading requires patience and discipline, but can be rewarding for those looking to build long-term wealth through crytpocurrencies. This guide will provide an overview of position trading and how it can be applied to the cryptocurrency markets.

You’ll learn about position trading:

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What is Position Trading?

Position trading involves taking a long or short position in a cryptocurrency and holding it open for an extended period of time. The trader is aiming to profit from longer-term moves and trends in the market rather than short-term fluctuations.

Some key characteristics of position trading:

  • Longer time frames – Trades are held open for weeks, months or years rather than just days or hours. Traders focus more on the daily, weekly and monthly charts.
  • Longer-term trends – The goal is to capture moves associated with long-term trends, not day-to-day volatility.
  • Fundamentals – Fundamental analysis is often used to identify promising long-term opportunities.
  • Patience – Requires patience to hold positions open for extended periods of time.
  • Risk management – Key to protect capital and avoid overexposure. Leverage is often used to maximize profits from broader moves.

Position trading aims to maximize profits from long-term trends in the market rather than short-term opportunities. It suits investors who are patient, disciplined and focused on the bigger picture.

Why Position Trade Cryptocurrencies?

There are several advantages to position trading in the cryptocurrency markets:

  • Take advantage of long-term trends – Cryptocurrencies have experienced strong long-term uptrends. Position trading aims to maximize gains from these moves.
  • Avoid noise and volatility – Intraday trading volatility can be extreme in crypto. Position trading avoids being stopped out by short-term moves.
  • Leverage opportunities – Leverage allows position traders to magnify gains from long-term trends. Capital is preserved by using tight stop losses.
  • Tax advantages – Longer-term holdings over 12 months benefit from long-term capital gains tax rates in many jurisdictions.
  • Fundamentals drive long-term prices – Focus on value and adoption rather than hype cycles and speculation.

Position trading suits traders who have a longer-term macro view of the cryptocurrency markets and want to benefit from major trends.

Getting Started with Position Trading Cryptocurrency

Position trading does require some skill and knowledge. Here are some tips for getting started:

  • Learn fundamental & technical analysis – Conduct research to identify promising long-term opportunities. Keep up to date with fundamentals and monitor charts to identify key support/resistance.
  • Choose your trading style – Will you be discretionary, using your judgement to enter and exit trades? Or will you use a rules-based approach with specific criteria?
  • Find a suitable exchange – Look for exchanges that offer the necessary margin capabilities, trading tools and coin selection for your strategy.
  • Utilize stop losses – Manage risk on every trade. Set stop losses based on support levels, volatility and personal risk tolerance.
  • Start small – Test your strategy with a small position size first. Position trading requires patience so start with a size you are comfortable with.
  • Track your trades – Keep records of your trades including entry price, sizing, exit strategy, reasoning. Review your notes regularly to improve.
  • Maintain composure – Don’t be shaken out by short-term movements. Stay focused on the longer-term picture.

Adopting the right position trading mindset and skills takes time but is essential for long-term success.

Long and Short Position Crypto Trading Strategies

There are many different ways to apply position trading in the cryptocurrency markets. Here are some of the most popular strategies:

Trend Following

This straightforward strategy involves identifying a long-term trend and taking a position to benefit from continuation of that trend:

  • Identify long-term trend using moving averages, price patterns, momentum oscillators etc.
  • Enter long position when trend is up. Enter short position when trend is down.
  • Use trailing stop loss to lock in profits as trend continues.
  • Exit when trend changes or loss limit reached.

Range Trading

Range trading aims to profit from bounds in price movements over time:

  • Identify price range using horizontal support and resistance levels.
  • Enter long position near support. Enter short position near resistance.
  • Set stop loss below support on longs, above resistance on shorts.
  • Take profit near range extremes before reversal likely.

Breakout Trading

This strategy looks to profit from major price breakouts to new highs or lows:

  • Identify key support/resistance levels that price is ranging between.
  • Enter long position on break above resistance with stop under breakout candle.
  • Enter short position on break below support with stop above breakdown candle.
  • Manage trade with trailing stop until exit.

News/Event Trading

Major news or events can sparks long-term trends. This strategy looks to capitalize on them early:

  • Fundamental analysis to identify upcoming events that may impact price.
  • Enter position in direction of expected move just before event.
  • Manage trade with wide stop allowing for volatility just after event.
  • Hold position open to capture the subsequent trend.

Swing Trading

Swing trading sits between day trading and trend trading. Trades are held for days or weeks:

  • Use technical analysis to identify reversal patterns signifying start of new swing.
  • Enter long on bullish reversal, short on bearish reversal.
  • Set wider stop loss to account for short-term volatility.
  • Take profit once swing completes based on analysis.

Managing Risk

Risk management is crucial when holding trades open for extended periods. Some tips for managing risk:

  • Appropriate position sizing – Don’t risk more than 1-2% of capital on any single trade. Appropriate size depends on volatility, stop distance and personal risk tolerance.
  • Use stop losses – Essential to define and stick to stop losses based on support levels, chart patterns, volatility and risk management rules.
  • Limit leverage – While leverage can maximize gains, excessive leverage can lead to amplified losses. Set a leverage limit aligned with risk tolerance.
  • Portfolio diversification – Trade a portfolio of coins rather than just one to reduce risk. Diversification smoothes out portfolio equity curve.
  • Take partial profits – Consider taking partial profits along the way to lock in gains and recoup some initial capital.
  • Move stops to breakeven – As trade becomes profitable, move stops to breakeven to reduce risk exposure.
  • Hedge positions – Hedge against open positions to reduce downside risk in adverse moves.
  • Don’t overtrade – Patience is key. Avoid overtrading by sticking to high-confidence setups.

Proper risk management will allow position traders to survive periodic market volatility and avoid wiping out their capital. Mastering this aspect is essential for long-term success.

Best Practices for Position Trading

Here are some best practices worth following for position traders:

  • Take time to identify high probability opportunities using research and analysis.
  • Be patient for the right entry point rather than chasing a move.
  • Start small – test new strategies with a small position size first.
  • Use stop losses and have a clear exit plan before entering any trade.
  • Focus on long-term Picture rather than short-term noise.
  • Review and learn from your losing trades. Stick to the strategy that works.
  • Keep detailed records of all trades for review and improvement.
  • Continuously monitor fundamentals – be ready to close trades if thesis changes.
  • Wait for the optimal trade setup rather than forcing trades. Quality over quantity.
  • Maintain composure during market volatility – stick to the plan.

Developing effective position trading strategies takes time and discipline. By adopting sound risk management practices and analyzing trades, position traders can profit consistently from long-term trends in the cryptocurrency markets.

Useful Indicators for Position Traders

In addition to fundamental analysis, position traders can utilize technical indicators to identify and manage trades. Here are some of the most useful technical indicators:

  • Moving Averages – Identify direction of long-term trend and potential reversals. Simple, exponential and volume weighted moving averages are commonly used.
  • Relative Strength Index (RSI) – Measure price momentum and overbought/oversold conditions. Values above 70 indicate overbought while values below 30 indicate oversold.
  • Moving Average Convergence Divergence (MACD) – Shows relationship between two moving averages. Crossovers can identify trend changes and momentum.
  • Bollinger Bands – Price channel showing volatility. Used to identify overbought/oversold conditions relative to recent volatility.
  • Ichimoku Cloud – Combines various indicators to identify support/resistance levels, trends and momentum. Particularly useful for position traders.
  • Volume – Rising volume confirms new trends while declining volume suggests reversals. Position traders focus on volume trends rather than individual spikes.

No indicator is perfect for timing the market. Position traders often combine multiple indicators as well as fundamental analysis to find high probability trading opportunities. Patience and discipline is required to effectively execute the strategy.

Position Trading with Bitcoin

As the largest cryptocurrency, Bitcoin offers ample liquidity and movement for position traders. Here are some tips for position trading Bitcoin:

  • Use longer timeframes like the daily and weekly charts to analyze trends and ranges. The 4 hour chart can be used for entries and trade management.
  • Identify support and resistance zones which can act as profit targets or stop loss levels. Key levels are usually round numbers like $10k, $20k.
  • Monitor adoption metrics like hashrate, active addresses, exchange flows as proxies for Bitcoin demand.
  • Track on-chain data like HODL waves and reserves on exchanges for clues on accumulation and distribution phases.
  • Utilize moving averages like the 20, 50 and 200 day averages to identify trends and potential changes.
  • Measure extreme volatility with the Bollinger Bands indicator for oversold/overbought readings.
  • Analyze momentum using RSI and MACD to gauge trend strength and spot divergences.
  • Watch out for news and events like halvings which can propel long-term trend changes.

For major trend reversals, combine multiple indicators with clear breakouts of key support/resistance zones. Patience is critical for Bitcoin position trading.

Be Very Careful With…

While position trading can be profitable, there are some common mistakes to avoid:

  • Overtrading – Patience is required. Avoid overtrading by sticking to high-confidence, high-probability setups.
  • No stop loss – Always trade with a defined stop loss based on predefined rules like volatility or technical levels.
  • No exit plan – Have a clear exit strategy for taking profits before entering into any position. Don’t wing it.
  • Getting shaken out – Don’t get stopped out by short-term moves against the position. Give the trade time to work.
  • Not booking profits – Many profitable trades turn into losing trades because traders get greedy. Take partial profits along the way.
  • Bad timing – Wait patiently for your setup rather than jumping in too early. For breakouts, wait for confirmation.
  • Overleveraging – Avoid using excessive leverage. Losses can mount quickly in volatile markets.
  • Catching falling knives – Don’t average down on losing positions. Be flexible and willing to exit.
  • Ignoring fundamentals – Don’t get married to a position. Be willing to change stance if original thesis no longer holds.

Adhering to sound trading principles and avoiding common errors separates the successful position traders from average ones.

Platforms for Position Cryptocurrency Trading

To effectively implement position trading strategies, a suitable cryptocurrency trading platform is required. When choosing a trading platform, consider factors like margin trading capabilities, trading tools, platform reliability and security.

Here are some of the most popular platforms for position trading cryptocurrency:

Exchanges

  • Binance – Advanced trading platform with extensive tools.
  • Bybit – Crypto derivative exchange focused on position traders. Up to 100x leverage and deep liquidity.
  • Bitget – Known for a broad array of trading options, including margin and derivative trading. A favorite among institutions looking to hedge their crypto positions.

CFD Brokers

When choosing a platform, consider regulation, security, trading tools, margin rates, liquidity and slippage statistics. A combination of a centralized and decentralized platforms is recommended to manage risks.

Position Trading vs Swing Trading vs Day Trading

Position Trading: Best for traders who are looking for longer-term investment and are willing to be patient for bigger gains. Involves a deeper level of market analysis and is less time-consuming on a day-to-day basis.

Swing Trading: Ideal for those who can’t monitor their trades every minute but want more action than position trading. It involves holding assets for days or weeks to capitalize on expected upward or downward market swings.

Day Trading: Best suited for those who can dedicate a full day of attention to trading. It involves making multiple trades within a single trading day based on short-term price movements.

Comparison Table:

Aspect Position Trading Swing Trading Day Trading
Time Frame Weeks to Months Days to Weeks Within a Day
Level of Involvement Low Moderate High
Profit Goal Long-term Gains Medium-term Gains Short-term Gains
Analysis Required Fundamental & Technical Technical & Sometimes Fundamental Mainly Technical
Risk Level Moderate Moderate High
Capital Required High Moderate Variable
Tools Used Long-term charts, Economic indicators Technical indicators, Trend analysis Real-time charts, Quick decision tools

Final Thoughts

Position trading requires patience and discipline but can yield significant profits from long-term trends in the cryptocurrency markets. Extensive fundamental and technical analysis is needed to identify high-probability trade setups. Sound risk management rules must be implemented including appropriate position sizing, stop losses and reducing leverage.

This guide has outlined all the key elements of developing a profitable position trading strategy. Some key takeaways:

  • Utilize margin/leverage responsibly to maximize profits from major trends.
  • Incorporate both fundamental and technical analysis into your opportunity identification.
  • Maintain composure during volatility and avoid being stopped out prematurely.
  • Book partial profits along the way but let winning trades run their course.
  • Avoid overtrading – focus only on high-probability, high-confidence setups.

With the right trading plan and mindset, position trading presents a methodical way to profit from the long-term growth of cryptocurrencies.

Before You Go…

Other top resources on trading styles, strategies, and platforms include:

Gianluca Lombardi

Gianluca is the editor-in-chief of this site. A finance graduate, he is an active trader who has tested all trading platforms and knows all their secrets. Technology is his passion; he spends much of his free time in the metaverse. Gianluca loves learning new things, researching, discussing and writing about technology, especially when it comes to cryptocurrency and blockchain technology.