In essence, long-term trading, also known as position trading, means that open positions in financial markets are held by traders for an extended period of time. This trading style is more geared towards investors rather than speculators.
In today’s article, we will discuss whether long-term trading is possible in forex, what benefits and distinctive features it has.
1. Long-Term Trading: Here’s What You Should Know
2. Stock Market and Long-Term Trading
3. Long-Term Trading in Forex: Strategy
4. The Formula for Success in Long-Term Forex Trading
Long-Term Trading: Here’s What You Should Know
We have mentioned multiple times before that everyone can make money in financial markets. What’s more, you don’t have to spend every waking hour doing it — a couple of hours a month can sometimes be enough.
With long-term trading, you basically open a small number of trades in a month (unlike intraday trading) which remain open for a long time while generating profits which can be a hundred pips per one trade.
Warren Buffett is one of the well-known long-term investors. He picks the best companies, buys their stocks (often in times of crisis because that’s when they become cheaper), and then keeps them in his portfolio for years.
A private trader or investor doesn’t have to hold on to assets for that long. You can do so for several weeks to several months. It’s important to keep in mind that long-term forex trading involves swaps which must be factored in.
Stock Market and Long-Term Trading
The foreign exchange market and stock market differ in terms of volatility. Unlike the stock market, forex is open 24 hours a day. This is why the movement of securities may seem slow at first glimpse. It takes longer to switch from one daily level to another and so you need to hold positions involving stocks longer.
So, what are the benefits of long-term trading in the stock market? These include:
1. Small trading costs. The most important thing is to find a solid entry point, sell/buy an asset, and hold a position. In addition, placing a stop loss and a take profit will protect you against unnecessary risks.
2. Ability to receive dividends paid by the companies.
3. Application of portfolio strategies with additional risk hedging.
4. If your trading account allows, you can trade without leverage and stop losses thereby reducing the risks even more.
Long-Term Trading in Forex: Strategy
Here’s what should be factored in if you opt for long-term forex trading:
1. Fundamental analysis is essential. As far as currency pairs go, trends emerge under the influence of monetary policies stipulated by the central banks, overall economic and political environment. Evaluate it to predict long-term price movement direction.
2. Do not underestimate the importance of technical analysis. It’s important to do it on higher time frames (monthly, weekly, and daily ones). Long-term trading means that you shouldn’t go against the trend. Make sure to take into consideration strong horizontal support and resistance levels. Also, keep in mind that the price moves from one strong level to another.
3. Move where big money is heading. With long-term strategies, it is important to understand the direction in which the market whales will be pushing the price. You can use Real Market Volume, a handy indicator that can help you spot their “traces” in the chart and predict the subsequent direction of the price movement.
The traders often wonder how long they should hold on to the position. An important thing to consider here is the swap which is a fee charged for keeping positions open overnight. The profit potential and the time needed for the price to reach a target must be such as to ensure that you offset the swap-related costs and that the reward is actually worth it.
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The Formula for Success in Long-Term Forex Trading
When it comes to position trading in forex, the main thing is to find an accurate entry point and stay patient. You need to actually wait for both entry point and profit until the price reaches the target. However, the wait is definitely worth it since if you enter correctly, your long-term positions can have a profit potential that exceeds risks ten-fold.
“But how do I find such an entry point?” you may ask. Well, you need to move along with big market players. In order to see what price levels positions are opened from, where the price is being pushed and what levels will protect you against the breakout, you can install the Real Market Volume indicator. You will be able to see the market profile for 90 days which will simplify the search for entry points greatly and will increase the chances of making profits.
On top of that, Real Market Volume has been recently updated and now offers even more features to choose from. So, make sure to give it a whirl!
Watch this video to learn more about horizontal volume indicator and how it works