When the average person describes forex trading, they are likely to be talking about Hollywood stereotypes – noisy environments with flickering screens, crumpled pieces of paper and empty coffee cups. Even today, many believe that trading should be a fast-paced, adrenaline-filled race, but that’s far from the truth.
Nowadays, traders can pursue long-term strategies and easily monitor the situation from their smart devices. Read on to find out if long-term forex trading is right for you and how to pursue it.
What is Long Term Forex Trading?
Long-term forex trading involves engaging in a transaction in the forex market with a typical target of at least several hundred pips or more. For currency pairs like EUR/USD, which move around 100 pips per day (or less), this approach means holding a trade for periods ranging from a week to a month or, in some cases, even Longer.
While short-term trading is engaging and fast-paced but also mentally taxing, long-term forex is slower and more fundamental research oriented. The analysis requires assessing broader macroeconomic factors in various global markets such as interest rates, gross domestic product (GDP) projections, and employment rates. Successful long-term traders tend to pair a strengthening currency with a weakening currency, use technical analysis to look for an entry point, and then wait for the script to play out. Planning and patience play a central role in this style of trading.
9 Long Term Strategies for Forex Trading
Long-term forex trading may be slower, but it requires just as much discipline as short-term trading. Here are the essential guidelines to consider when planning the long-term trade.
Set a profit target and stop loss
Profit targets and stop losses are two key considerations when trading any timeframe.
These are the exit points – whether the trade ends up being successful or not. Typically, traders need to identify these before entering the trade to calculate risk/reward ratios.
Create and commit to a trading strategy
Clear rules allow the trader to distinguish between luck and consistency. For traders, this strategy will ultimately come down to their character, as they need to study the markets and find out which approach works best. There are many effective strategies, but not all of them will fit perfectly.
Check weekly charts and trends
The trend is the trader’s friend. Traders should keep an eye out for long-term trends visible on longer timeframes. Daily and weekly charts generally work best for this purpose.
Use leverage sparingly
Leverage is a double-edged sword as it amplifies both gains and losses. Long-term trading requires larger capital and wider stop-loss levels. Although it may be tempting to obtain this capital through leverage, it is risky business, especially for less experienced traders.
Factor turnover costs
The rollover or swap is the net interest on an overnight position. Since a trader borrows one currency to buy another, the interest rate difference creates a situation where interest is either earned or paid. When interest is negative (paid) and the trader uses a lot of leverage and holds a position for a long time, this cost can be high enough to significantly reduce profits even for a promising trade.
Beware of swaps
The swap rate is the interest rate differential between currencies for the currency pair held overnight. This concept is the basis of currency trading – a yield capture strategy.
Swing trading is a medium-term trading strategy that involves holding positions over a day. For long-term traders, swing trading can provide an option to hedge long-term positions while the market is flat. The best example of this approach is using Elliot Wave Analysis to trade long-term impulse waves and corrective action as short-term swings.
Implement the supply and demand strategy
Supply and demand are among the simplest concepts in economics. Supply refers to the amount of an asset that is available, while demand is the amount of an asset that market participants are willing to buy. Supply and demand analysis can be fundamental or technical. Fundamental analysis examines interest rate decisions and other key factors influencing the amount of money available. Meanwhile, technical analysis focuses on areas identifying buyer or seller interest on the charts.
Keep an eye on the fundamentals
Fundamental news is the engine of the currency markets. These include decisions on interest rates, inflation, employment and gross domestic product. Long-term traders should watch them closely as these events are key pivot points in their strategy. A big news surprise can completely change the narrative and require immediate action.
Benefits of Long Term Forex Trading
One of the main advantages of long-term forex trading is that it requires much less time than intraday strategies. It is therefore a favorable approach for all traders who have other obligations and cannot afford to watch the chart for hours at a time. Long-term forex trading is flexible over time, as traders can do a lot of research over the weekend while the markets are closed. Moreover, long-term trading requires less concentration and energy. Intraday traders face a lot of emotional turmoil, dealing with decisions that sometimes turn around in minutes. At the same time, long-term traders may only make a few key decisions per month. Finally, trading can be volatile and short-term traders often see their stop-losses triggered before the price moves in the expected direction. With long-term trading, this happens less since stop losses are generally wider and less likely to trigger.
Disadvantages of Long Term Forex Trading
Earnings capitalization is one of the strongest concepts in trading. Almost every trader’s dream is to turn a small account into an impressive one, and there are two problems with that. Trading requires strong risk management – otherwise it becomes gambling. Since a trader has to risk a limited amount of capital per position, account growth requires many trades. For long-term forex trading strategies, which offer a limited number of viable opportunities, account growth is then limited over time. Therefore, account size remains a major concern when pursuing long-term forex trading, as the account must be large enough to create significant growth in an environment of limited opportunity.
Best Brokers for Long Term Forex Trading
Trading in the forex market is easiest through forex brokers – regulated financial intermediaries who execute trades on your behalf. You can view the list of brokers recommended by Benzinga in the table below.
Claim exclusive offers
CedarFX is not regulated by any major financial agency. The brokerage is owned by Cedar LLC and is based in St. Vincent and the Grenadines.
AUD$200 or equivalent
US$100 (or equivalent)
eToro USA LLC; Investments are subject to market risk, including possible loss of principal.
Frequently Asked Questions
questions and answers
Is forex trading profitable in the long term?
Both short-term and long-term forex trading can be profitable. But traders who like to think bigger will find long-term trading more suitable as it allows them to tune out intraday market noise.
What is the long term trend in forex?
A long-term trend is a general price direction over weeks or months.
How do you find long-term forex trends?
You can find long-term trends by going to a daily or weekly time frame and using moving averages. A rule of thumb is to use a 50 and 200 period moving average on the daily chart to determine if the price is trending up or down or consolidating.