When it comes to foreign exchange (Forex) trading, there are several paths you can take. One of the best ways to amass wealth in this risky and rewarding endeavor is through long term forex trading.
Intraday or short-term traders try to time the market with the hope of catching the highs and lows. While you can certainly succeed in your initial trades, in the long haul, the cons of short-term trading far outnumber its pros by a considerable margin.
On the contrary, long-term trading in Forex provides an array of benefits that short term traders simply cannot leverage. In this read, we will look at why long-term in Forex is a better route, and some of the strategies you can implement to succeed.
The Benefits of Long Term Forex Trading
1. Resistance to Temporary Volatility
As a long term trader, you don’t have to worry about intraday spikes or stop-hunting. Your positions are usually safe from the daily volatility prevalent in the market.
If you take the long-term route, you will always have adequate time to adjust your position’s parameters when something important happens.
2. Spread Economy
When you indulge in long term Forex trading, you usually get more than 100 to 200 pips from every entry/position. However, in short term trading, the trades rarely go above 50 pips in profit.
Let’s assume your broker has one pip in the spread, and you make 2000 pips a month.
With ten profitable trades that yield 200 pips each, you will achieve 2000 pips in profit, minus the ten pips in form spread paid to the broker. That’s 0.5% of your gain going to the broker.
However, when you make a 100 short term trades with 20 pips each, you will have earned 2000 pips in profit, but 100 will go to the broker. That’s 5% of your total gains.
3. Long Term Forex Trading is Simple
To be a successful long term trader, all you need is to predict the general trend of the market as well as the ideal exit points. This is rarely a hard thing to do on the long-term charts, and since you rarely trade, you won’t have to make decisions too often.
The same cannot be said for short term forex trading as you need to develop complex strategies in order to succeed. Long term trading is less stressful, and you don’t need to keep your eyes on the market daily.
Long Term Forex Trading Strategies
Long term trading is very appealing for the above reasons, but as we all know, being successful in Forex trading calls for proper implementation of strategies. You need to know when to enter the market and when to leave to cash in on the pips or avoid further loss.
That being said, here are some of the best long term Forex trading strategies:
Trade the Trends
Perhaps one of the best ways to make money in both long term and short term trading is by trading the trends. Scratch the common mistake of trying to predict the lows and highs.
These are not only almost impossible to predict, but a new low or new high is usually where a new trend begins.
When you spit a new low or high (a movement that stops at the old resistance by at least three pips), this is likely a new trend in the market and warrants an entry.
Most investors and traders, particularly those that try to predict the lows and highs, wait for the pair to go back down or up, beyond the resistance line, and it is usually too late. Missing out on a trend leads to loss of opportunities and, in some cases, heavy losses.
Swing Trading
This is perhaps the best Forex trading strategy for a beginner. That’s because it does not call for the experience or discipline needed for trend-spotting and investing.
This type of trading entails looking for a spike in a pair, either up or down, and mentally defining a certain area of support and resistance. The next step is to keenly watch the momentum shift as the level holds before making your entry for the long term Forex trading signal.
As a swing trader, you sign up for quick entry and exit, holding your position between 2 to 7 days.
The Real Key to Long Term Forex Trading
There are foolproof Forex trading strategies if you can practice stringent money management practices and know that you need to stick to your chosen strategy. The last thing you want to do as a long term trader is get impatient due to a few losses.
In fact, you can’t be a successful trader if patience isn’t a virtue.
A trading strategy is important for making money when you take the long term route. Every trader or investor is in for the ‘Big Money’, but this is rarely possible with just a few trades.
You need a strategy that reduces the risk of losing money while signing you up for those sweet profits.
If you are nobody’s fool, then implement a Forex trading strategy that keeps you focused on racking long-term profits. This means you’ll need to settle for small gains and the gradual building of your wealth.
Losses are inevitable, but in good days, you will make a big killing. That is just the nature of the market.
At the end of the day, it is the same as gambling, mounting up your small gains and cutting losses is the best way to get rich by trading Forex without losing your mind!
