Also termed as position trading or big picture trading, long term forex trading is considered more effective than holding multiple positions of short term. The longer span indicates trades that extend to weeks, months, days, or sometimes a year too. Despite being profitable, this technique is not for all traders. Only those who do not mind the extended waiting span and shun short span trading are suitable for this technique.
Significance of Long-Term Trading
While many traders favor the risk and excitement associated with short term strategies, such as scalping, it is the long-term process that is more rewarding. Why?
This is because the extended time allows for accurate assessment of financial information and economic status. The market trends’ upward or downward movement is revealed with the technique. In contrast, the short-term method just provides minor troughs or peaks, which are grossly misleading.
Advantages for a Trader
The extended position allows several significant advantages in forex.
These include:
- It is not as stressful as the fast and short changes that happen in short span trading.
- There is reduced risk as the longer wait ensures stable income for the trader due to the ability of monitoring, predicting, and acting on market shifts. This is particularly relevant in volatile markets.
- The method saves time as a trader need not continuously monitor the market. Tracking markets can be done in a spaced-out manner as it allows the shifts to taper off during the longer span.
- Lower capital is sufficient as the initial funds invested can increase manifold when the trader is ready to wait.
- Longer trades have better stop-loss positions. This is because the extended span allows more maneuvering and recovering time for the market.
- Longer span trends are profitable as it is possible to track the geopolitical and economic conditions over the long term, resulting in big profits.
Influencing Factors
There are a few important factors that help a trader when assuming an extended position.
These are:
Interest rate
Due to the trade direction and the type of currencies involved, the rollover occurring on longer span trades can make you pay or earn some interest. But, on the whole, these are minimal so they do not affect your profits greatly.
Fundamental Factors
Political changes, employment status, etc. are some of the factors that impact an economy. You should monitor these fundamentals that impact the currencies you trade.
Technical Analysis
Sufficient knowledge about the technical indicators and their implications on your trade is needed for supporting your decisions. The assessment with different, effective indicators helps reduce the risk involved.
Charts
Weekly indicators are less exhausting than keeping track of the market movement with daily charts. They also minimize any doubts you have regarding your decisions.
The above factors help you to take an objective look at your decisions. It is possible to make changes in your trades as per the changes in the economic conditions. Setting up new technical is also possible. You can avoid emotional pressures that make you vulnerable to trading errors, which can be easily avoided.
Final Takeaway
Trading over the long span may lack the thrill of fast profits but if you are particular about succeeding and doing it big in the long term, this is the technique to opt for. It involves considering all facets of trading and arriving at a knowledgeable decision.
The detailed analysis you do can assist you with robust decisions that are supportive of your positions. In fact, the actual trading is tedious and a big drag. But, it helps traders to increase their overall profitability and limit the overall risks by restricting too much exposure.
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