Abstract：Many traders make trades several times a week, or even several times a day, but one style of trading that is often overlooked is long term trading.
In Forex, both short-term and long-term trading have advantages and disadvantages.
Although short-term trading such as scalping trading and day trading in forex are popular due to their reputation for fast profits, a long-term view is essential for correctly assessing data (technical analysis) and economic conditions (fundamental analysis). In this article, we will help you understand what is long term trading and guide you how to trade with long term forex strategies.
What is Long-Term Trading？
Long term trading or investing consists of using a combination of fundamental analysis and risk management to be able to keep your active trades open for long periods of time. This involves waiting for weeks or months to gain profit.
Long term trading relies on fundamental and technical analysis using daily and weekly charts. While most forex traders come to the market with a short term trading mentality and plan, long term strategies are a great way for traders to have much larger profits, and lower their risk, with the right strategy.
There are quite a few strategies that you can use in long-term forex trading, each with their own strengths and limitations. Here are some of the most popular ones that traders use today.
1. Trade the trends
Trend trading is by far the most potentially profitable forex trading technique, when correctly executed. Trend traders will usually start by identifying the major market trend and then wait for optimum market entry conditions.
You can use this strategy if only you are not new to the market. This is because trading the direction involves making future market predictions, which you can only make once you have been in the market for a long time. The investors who predict the market lows and highs wait for the price of the trading pairs to drop beyond the initial resistance point. This makes them to end up losing the opportunity which could have gained them profits.
2. Breakout confirmation
This is confirming the newly stating trends or breakouts so that you won't be easily get fooled by the illusory breakouts. The fake breakouts mostly take place when there is market anticipation of a new trend, but it fails to come in the same way it was anticipated to be. To keep this from becoming a problem, confirming breakouts is absolutely necessary. For this purpose, it is useful to master the Stochastics indicator and the Relative Strength Index (RSI) indicator.
3. Swing trading
Swing trading is the best long term strategy for beginner investors. This is because the strategy does not require any experience or discipline as the other strategies. In this strategy, you just have to detect spikes in the price chart then identify the resistance and support areas. Shortly after this, the price momentum will change as the level holds. This is precisely the moment where you should enter the market with your long-term trade. Typically, swing trades stay open for a couple of days, rarely extending for more than a week. Waiting for the swing that occurs over a few days usually brings bigger results than short-term day trades.
What're the Advantages of Long-Term Forex Trading？
1. Cost effective
When you trade on larger time frames, you take less trades, so you don't pay lots of commissions on trades. You don't get affected by the spread since it becomes indifferent on larger pip targets. In addition, you don not need to be in front of the charts for long periods of time, only a few minutes every day and letting the market do its movements. Less work from you will bring better results.
2. Effective market analysis
It is difficult and impractical to use fundamental analysis in short-term trading where the course of a trade is a few hours, or at most, days. Thus, short-term traders are usually limited to using technical strategies for analysis and strategies. Long-term traders, on the other hand, can choose to focus on fundamental or technical approaches while formulating their strategies, and the added dimension of flexibility does translate to greater insight and better profits in due time.
3. Less stress
Keeping distance from the charts will save you from emotional rollercoasters. You will get better setups and signals instead of messy markets from the smaller time frames
4. Avoid daily market swings
The forex market changes instantly. To speculate on those moves, one needs a strategy to avoid the daily swings that take you out. Long term strategy helps traders avoiding daily market swings.
5. Stop losses tend to work better on longer trades
On a short trade, once a stop loss is activated, the trade ends, resulting in losses. On a longer-term position, there is room for the market to experience short-term spikes and dips and then have the time to recover again with no stop loss trigger. The trade can then continue on its planned trajectory.
Long Term Forex Trading vs Short Term Forex Trading
The first and most obvious advantage of short term trading is that you will get your money quicker and you won't be holding the trades for long, so you will close them quickly and will get your profits quickly. But for long term traders, it can take a long time to wait for profits, from a day to months.
However, short term forex trading can be highly stressful if done over a long period of time, as you've probably discovered if you have any experience of forex trading, while long term trading can be less stressful due to the fact that you are not constantly needing to do anything such as watching the charts.
Overall both short-term and long-term trading have advantages and disadvantages and which one is right for you will depend on your own personality and time constraints. There is no harm in trying a number of different styles until you find the one that is right for you.
Conclusion
While most forex traders trade on a short term daily basis, long term forex trading offers great earning potential. This style of trading is ideally suited to people who want to trade forex but maybe have a full-time job so don't have the time to sit in front of a computer and monitor their positions all day. And while there is never a guarantee of success in trading, if you follow this guide and take your position seriously, you can enjoy a fruitful and long term ride in the forex market.
