Long-Term Trading Strategy

Most traders are willing to settle for day trading. It’s exciting, fun, and can make significant money. But if you are more the slow and steady type, you'll be interested in long term forex trading strategies. Let’s explore what long term Forex trading entails, and the major strategies to be successful.

What is long-term Forex trading?

What defines a long-term Forex trade? Quite simply, holding your Forex positions for a large number of days is considered long-term, or positional trading. It involves far less time at your desk watching the markets. The idea is to grab as many pips as possible, usually looking to gain at least 200 pips per single trade. You'll achieve higher returns per trade than day traders, but your opportunities will be more limited. To be a successful long-term trader, you'll need a high level of knowledge and preparation. You're likely to use fundamental analysis.

Long-term Forex strategies

Long-term trading involves finding a trend and following it for weeks or even months. There have been traders known to hold positions for over a year, but that is very rare. The general rule for positional trading is to ‘buy based on expectations, sell based on the facts’. Simply put, you execute a trade if you have reason to expect potential currency moves. Then, when you’ve seen whether your expectations were true, you keep or sell based on the facts. This is in contrast to day traders, who buy based on results. You're far more likely to make high profits on your long-term trades.

Another important rule when strategizing is not to get caught up in what’s likely to happen only in one of the locations of your currency pair. You should look carefully at both countries, and predict based on their likely economic movements.

Therefore, preparation is becoming vital. You should perform a deep analysis of the economies, learn about scheduled future events, their possible results and consider possible Black Swans.

Some general rules to follow

The above will determine your strategy, but there are some very important general rules to keep in mind.

Use tight leverage

You're not trying to make rapid, huge returns, so you should trade volumes that make up quite a small percentage of your margin. You want to sustain any common intra-day or intra-week volatility, not fall out at the first unrest. Various currency pairs can move drastically within the course of a day, but daily movement should not be the turning point of your long-term trades.

Pay attention to Swaps

Although long-term Forex operations can generate great revenue, revenue is not the same as profit. Trading instruments have “Swaps”, a fee for holding a position overnight. Swaps can be very positive, but can also be negative for both of the trading directions. You must always consider the effect Swaps are going to have on your profit.

Effort/Return Ratio

Even with the best long-term Forex trading strategy, you may not achieve your target. Since leverage is small, if your deposit is small you should expect proportionate returns. When deciding on trades, you should assess what sort of returns you'll get and whether it’s worth the effort.

Long-term Forex trading is a great way to earn revenue, but it requires careful preparation, patience, and a broad view of the Forex market.

■ Forex-Investors.com