After performing the fundamental analysis, the trader may be confident that the US Dollar is indicating overall weakness and the Euro is indicating overall strength for the coming six months.

After performing the fundamental analysis, the trader may be confident that the US Dollar is indicating overall weakness and the Euro is indicating overall strength for the coming six months.

Keeping in view the overall strength of Euro and the weakness of US Dollar, the next step for the position trader would be to open a long position in EUR/USD pair. This simultaneously provides the position trader with long Euro position and a short US Dollar position.

Going long on Euro and at the same time short on US Dollar, this combined trading position fulfills your fundamental outlook as the position trader on both the currencies. The long term directional bias has been formed by you as the position trader on the basis of fundamental analysis.

So position trading depends on using fundamental analysis in identifying a profitable position in the currency market and then using technical analysis in setting up the actual trade. However, pinpointing the best time for the trade entry as well as setting risk managed control strategies is best accomplished by using technical analysis.

Now this concept of strength/weakness fits extremely well with the forex markets as all currencies are traded in pairs unlike the stock market or for that matter other financial markets. The position trading uses fundamental analysis in pairing strength with weakness.

Trading forex requires a directional commitment on two currencies for each trade, position trading with the strength/weakness model is the most logical fundamental method for approaching long term forex trading.

In stock trading, you only invest in stocks that go up and down but two stocks can never be paired together. Buying one currency because it looks like it will become stronger while simultaneously selling another currency because it looks like it will become weaker is a better way to trade as compared to other financial markets.

What should be your first step to identify a strong/weak pair? Your first step as a position trader should be analyze the Central Bank policy statements, economic growth factors of these countries, global economic news etc to identify the currency with the strongest positive future prospects and the currency with the strongest negative future prospects at a given point in time. You will have to do fundamental research and analysis on all major currency pairs as a position trader.

Suppose you identify AUD and JPY as the strongest gainer currencies in the foreseeable future while CAD and CHF as the strongest loser currencies by performing fundamental analysis. Possible currency pairs for position trading could be long AUD/CAD, long AUD/CHF, short CAD/JPY and short CHF/JPY.

After this, you can enter the trades with the help of technical analysis and hold them as long as they move in the correct direction disregarding minor corrective swings and market noise because the price action is never ever linear. It is always up and down with minor trends superimposed on major trends.

Position trading if done properly can be one of the most effective methods of extracting long term profits from the forex markets. Position trading maybe the most difficult method of approaching forex trading for the beginners! It requires a great deal of patience and faith in ones own analysis to weather the inevitable swings against the trading position.