Building A Core Position VS Taking A Swing Trade
This video shares some differences between trading core positions and swing trades.
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We have a quick question here from Asanka, saying what benefit there is to taking multiple units on a trade like we have on the AUDNZD, how do we get maximum output out of a trade like that?
This is a great question Asanka, and it basically comes down to core positions and swing trades. When you take a swing trade, you can decide your usual risk that you feel comfortable on the trade and you can split that trade into 2 units, or maybe 3 if you prefer and then you can manage the trade accordingly by taking profit at some key levels as you would with a intraday trade as well.
When it comes to core positions, it is slightly different, but not a lot different, the difference is that you are playing a specific range for your entry instead of a hard level that you want to enter.
For example, I have been building a core positing in the AUDNZD recently in line with the position trade idea that we posted two weeks back, and we are playing a much longer-term theme with this at the moment, which is partly central bank policy divergence but there is also the reflation trade narrative as well as commodities to keep in mind, so we expect upside for the AUD from multiple fronts, and we would only expect that to change unless equities sell off hard, and if that should happen it will of course affect the NZD as a high beta as well.
So, with the overall thesis in play, instead of just taking a regular swing trade with hard targets, I am planning to build a core position around a specific range, meaning I am comfortable adding smaller chunks to this trade at that range, and obviously even better if we reach the low end of the range to add from.
The key difference is that we are deciding what amount we want to risk ahead of time and we are building into a position over time that eventually reaches our full risk, and then we plan to keep playing a range on that pair, for example if we reach an area where we think we like to take some profit, we can take one of our units off, and then if the pair retraces into key zones we will look to add to the trade again, basically maintaining a core position that we can trade around for that instrument.
So, there isn’t a whole lot of difference, apart from the timeframe for how long we see the trade playing out and whether we are just playing a swing trade shift or whether we are building a core position in something.
So, hope that helps, any other questions just let us know.
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