Long-Term Forex Trading Strategies

When an average person describes forex trading, they’re likely to talk about Hollywood stereotypes — loud environments with flickering screens, crumpled pieces of paper and empty cups of coffee. Even today, many believe that trading has to be an adrenaline-filled, fast-paced race, but that is far from the truth.

Nowadays, traders can pursue long-term strategies and conveniently monitor trades from their smart devices. Read on to learn whether long-term forex trading suits your interests and how to pursue it.

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What is Long-Term Forex Trading?

Long-term forex trading is engaging in a transaction on the forex market with a typical goal of achieving at least several hundred pips or more. For forex pairs like EUR/USD that move about 100 pips per day (or less), this approach means holding a trade for periods between one week to one month or, in some cases, even longer.

While short-term trading is engaging but also mentally taxing, long-term forex is slower and more geared toward fundamental research. Analysis requires evaluating broader macroeconomic factors in various global markets like 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 scenario to play out. Planning and patience play a central role in this trading style.

9 Long-Term Strategies for Trading Forex

Long-term forex trading might be slower, but it requires just as much discipline as short-term. Here are essential guidelines to consider when planning your trading strategy long-term.

Set a Profit Target and Stop Loss

Profit targets and stop losses are two key considerations when trading in any timeframe. These are the exit points — whether the trade ends up successful or unsuccessful. Generally, traders should identify them before they enter the trade to calculate risk-to-reward ratios.

Create a Trading Strategy and Commit to it

Clear rules allow a trader to distinguish between luck and consistency. For forex traders, this trading strategy will ultimately depend on their trading personality, as they need to study the markets and discover the approach which works the best. There are many successful forex strategies, but not all of them will be a great fit.

Check Weekly Charts and Trends

The trend is the trader’s friend. Traders must keep their eyes on long-term trends visible on higher timeframes. Daily and weekly charts usually work best for this purpose.

Use Leverage Sparingly

Leverage is a double-edged sword since it amplifies wins and losses. Long-term trading requires larger capital and wider stop-loss levels. Although it can be tempting to get that capital through leverage, it’s a risky endeavor — especially for less-experienced traders.

Factor Rollover Costs

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 the interest is either earned or paid. When the interest is negative (paid) and the trader uses a lot of leverage and holds a position for a long period of time, this cost can be high enough to considerably reduce the profits even for a promising trade.

Pay Attention to Swaps

The swap rate is the interest rate differential between the currencies for the currency pair held overnight. This concept is the basis behind a currency carry trade — a strategy of capturing yield.

Swing Trading

Swing trading is a medium-term trading strategy in which a trader holds positions longer than one day. For long-term traders, swing trading can provide an option to hedge long-term positions while the market is stalling. The best example of this approach is using Elliot Wave Analysis to trade the impulse waves in the long term and corrective ways as swings in the short term.

Implement Supply and Demand Strategy

Supply and demand are some of the simplest concepts in economics. Supply refers to the quantity of an asset that is available, while demand is the quantity of an asset that market participants are willing to buy. Supply and demand analysis can be fundamental or technical. Fundamental analysis looks into interest rate decisions and other key factors influencing the amount of money available. Technical analysis focuses on zones identifying the buyer or seller's interest on the charts.

Keep an Eye on Fundamentals

Fundamental news is the driving force behind the forex markets. These include interest rate decisions, inflation, employment and gross domestic product. Long-term traders must keep a close eye on them because these events are key pivot points in their strategy. A big surprise on the news can completely change the narrative and require immediate action.

Advantages of Trading Forex Long Term

One of the primary benefits of long-term forex trading is that it requires much less time than intra-day strategies. Thus, it is a favorable approach for traders who have other obligations and cannot afford to watch the chart for hours at a time. Long-term forex trading is time flexible as traders can do a lot of research over the weekend while markets are closed.

Long-term trading requires less focus and energy. Intraday traders experience a lot of emotional turbulence, dealing with decisions that sometimes flip in mere minutes. At the same time, long-term traders might go through only a few key decisions per month. Trading can be volatile, and short-term traders often have their stop-losses triggered before the price moves in the anticipated direction. With long-term trading, this happens less since stop losses are generally wider and less likely to trigger.

Disadvantages of Trading Forex Long Term

Profit compounding is one of the strongest concepts in trading. Almost every trader’s dream is to grow a small account into an impressive one, and there are two problems with that. Trading requires solid risk management — otherwise, it becomes gambling. Since a trader needs to risk a limited amount of capital per position, growing the account requires many trades.

For forex trading long-term strategies, which provide a limited number of viable opportunities, account growth is then limited by time. Therefore, account size remains a primary concern when pursuing long-term forex trading, as the account has to be large enough to create meaningful growth in an environment with limited opportunities.

The Patient Approach

Long-term forex trading is a viable alternative to fast-paced day trades and involves pursuing transactions over extended periods for significant gains. Successful traders focus on fundamental research, macroeconomic factors and technical analysis. Some forex trading long-term strategies include setting profit targets, following trends, using leverage sparingly, considering costs, using swing trading, implementing supply and demand strategies and staying informed about news. Long-term trading requires less time and emotional energy but has limited growth potential. It can be suitable for traders seeking a more measured approach to the market.

Where to Trade Forex

Trading the currency market is the easiest through forex brokers — regulated financial intermediaries that execute trades on your behalf. You can check the list of Benzinga’s recommended brokers in the table below.

Frequently Asked Questions