In a society where speed and immediate gratification reign supreme, it is no surprise that the forex market is characterized as a high-speed marketplace with instantaneous trades. Even though day trading sounds attractive, there is an exciting and often more sustainable way to generate profits through a slower, more thoughtful process: long term forex trading. This style of trading is not about catching quick pips in forex; it is about seeking and riding major waves and allowing you to build wealth with consistency as you wait and make plans.
In this guide we will help you disengage with the noise of the market and understand the big picture. We will take you through the fundamental styles of trading, such as position trading forex and the forex swing trading strategy, and we will provide you with a clear structure to build your plan, and ultimately develop a strategic and investment mindset.
The Power of Patience: Advantages of a Long-Term Approach
Why would you want to play the long game in a market that is moving every second? The long-term forex trader has great advantages, especially if that trader cannot, or would rather not, spend every minute staring at their screen all day.
- Less Stress and Emotional Burden: The long-term forex trader uses daily or weekly charts. This means that the trader doesn’t have to spend every moment watching price, nor suffer the anxiety of witnessing every tiny wiggle in price action.
- Much Better Market Signals: When you focus on longer timeframes, you filter out so much of the “noise” of smaller time frames and ultimately see the major trends much more clearly. This allows the trader to base trading decisions off more reliable and well-thought-out signals.
- Lower Transaction Costs: One of the major advantages is that the trader is not going to trade so frequently. When there are fewer entries and exits, you will pay less in the long-run in commissions or spreads, which grows your bottom line even more.
- More Profit Potential Per Trade: Although you are not trading every minute of every day, the goal of long term forex investing is to catch big moves in the market. The
- goal is to hit major trades that will move the market in hundreds, potentially thousands of pips. Long term investment forex is much more powerful..
The Two Pillars of Long-Term Trading: Position vs. Swing
Long term forex trading primarily breaks down into two distinct styles. While both involve patience, they cater to slightly different goals and personalities.
1. Position Trading Forex
This is the ultimate long-game. Position trading in forex involves a trader finding a significant trend and holding it for weeks, months, or even years – in order to profit from it. This type of trading is fundamentally based, meaning it depends on the fundamental analysis of the countries or economies you are exchanging currencies from – economic habits, health, interest rate policies, political standing, and so on. If you have the patience to hold trades because of an economic conviction – this is your style of trading.
2. The Forex Swing Trading Strategy
A forex swing trading strategy is generally considered to be a medium-term approach. Swing traders want to get in and out of trades during the ‘swings’ in the market that happen over a few days to a few weeks. This type of trading strategy can be classified as a hybrid approach because it uses fundamental analysis to determine the overall market direction, along with technical analysis to determine exact entry and exit points. This type of strategy is perfect for a trader who wants to hold trades longer than a day but also wants to be more active in the process than a position trader.
Building Your Long-Term Forex Trading Strategy: A Step-by-Step Guide
Developing a robust plan is essential. Here’s how to construct your strategy from the ground up.
Step 1: Master Fundamental Analysis
For any long-term investment forex, fundamentals are king. You need to understand the economic drivers that cause currencies move up and down over time. Focus on key reports like GDP, inflation (CPI), employment, and of course, central bank interest rates.
Step 2: Utilize High-Timeframe Technicals
Fundamentals give you the “why”, and technical analysis on daily, weekly, and monthly charts will give you the “when.” Use Simple Moving Averages (SMAs) such as the 50, 100, and, 200-period to identify long term trends and dynamic support/resistance.
Step 3: Implement Strategic Risk Management
When hold trades for the long term, it is important to give your positions the time and room to breathe. This usually means using wide stop losses to avoid being shaken out by short term volatility. You will also need to use a smaller position size to balance the width of your stop. Most importantly, discipline will be the cornerstone to long term forex investment success.
Step 4: Choose a Supportive Broker Partner
Your broker is important when holding positions overnight. One factor to consider is the swap fee (or rollover fee), which is the interest you pay or earn while your position is held overnight. If you are looking for long term forex trading, you will have to choose a broker which provides commission-free swap rates.
Your decision on who your broker will be can impact your long term forex trading objectives. You need a broker which is providing a stable trading platform and competitive overnight fees. Many traders looking for a forex swing trading strategy or plan, are looking at brokers such as Capitalix or SmartSTP for their strong and stable trading platforms. When looking for position trading forex, you might want to consider brokers such as FX Road or Trade EU Global which have a attractive array of trading assets for a diversified approach. The key here is to find a reliable environment for you to trade, and firms like CapPlace, FirstECN, SuxxessFx, Tradgrip and Algobi in the space are often part of the discussion of traders looking for some stability and a range of associated tools for long term investment in forex trading.
Conclusion
Long-term forex trading is an effective and profitable discipline that turns trading from a chaotic experience to you creating your own strategy. By following the fundamentals, working with high time-frame charts, and implementation solid risk management, you can set yourself up to catch the major trends in the market.
Regardless if you use a forex swing trading strategy, or are all in on position trading forex, you are adopting a trading methodology that is based on sustainability. You can walk away from the noise, and see the bigger picture while developing a long term forex trading strategy that fits with your lifestyle and financial goals.
FAQs
- What is the main difference between position trading forex and a forex swing trading strategy?
The primary difference is the holding period. Position trading forex is a very long-term strategy where trades can last for months or years, based mainly on fundamental analysis. A forex swing trading strategy is more medium-term, with trades lasting several days to a few weeks, using a blend of fundamental and technical analysis.
- Is long term forex trading suitable for beginners?
Yes, it can be excellent for beginners. It’s less time-intensive, reduces emotional decision-making, and allows more time for analysis before entering a trade. It encourages a disciplined and well-researched approach from the start.
- How do I manage risk when I hold trades long term?
When you hold trades long term, you typically use a wider stop loss to accommodate daily volatility. To balance this, you must use a smaller position size. This ensures that even with a larger stop in terms of pips, your actual monetary risk remains a small, controlled percentage of your account.
- Is technical analysis still important for long term investment forex?
Absolutely. While long term investment forex is often driven by fundamentals, technical analysis on high timeframes (daily, weekly) is crucial for identifying optimal entry and exit points, confirming trends, and setting effective stop-loss and take-profit levels.
- What are swap fees and why do they matter for long-term traders?
A swap fee is the interest paid or earned for holding a forex position overnight, based on the interest rate differential between the two currencies. For traders who hold trades long term, these fees can accumulate and become a significant cost or a source of profit, making it essential to choose a broker with competitive swap rates.