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Long-Term Forex Trading Strategies

Reading time: 6 minutes

This article will explore long-term currency trading strategies, highlighting the best practices, and reviewing important considerations for traders to take into account. Many professional traders interested in trading currencies online opt for day trading, being drawn to its excitement and profit potential. However, positional traders (also known as long-term Forex traders) are more likely to generate larger profits.

What is Long-term Forex Trading?

Long term Forex trading strategy

Source: MetaTrader Supreme Edition - Correlation Matrix - Data Range: 20 Apr, 2015 - 7 May, 2015

Two words – positional trading. The idea behind this approach is to make fewer transactions that produce larger individual gains. While traders harnessing this strategy usually aim to make at least 200 pips per trade, their opportunities are far more limited. As a result, traders who use this approach require thorough preparation and substantial knowledge before using it.

Long-term Strategies for Trading FX

Long term trading strategies

Source: MetaTrader Supreme Edition - AUDUSD Daily Chart - Data Range: 17 Mar, 2013 - 10 Apr, 2016

Positional trading exemplifies how to trade Forex long-term. It involves identifying a trend, then following it for weeks or months. In some cases, traders have followed a trend for over a year. When applying long-term Forex trading, traders buy based on expectations, and sell based on facts. For example, speculators like George Soros heavily shorted the British pound in 1992.

They were skeptical of the UK's ability to maintain fixed exchange rates at the time. The country pulled the pound from the ERM on 22 September 1992, and Soros made more than £1 billion on the deal. Keep in mind that if you trade the GBP/USD, you should consider economic events not only in the UK but also in the US. You should conduct thorough analysis on the economies of the two currencies, and be sure to evaluate the potential for unforeseen events.

A Long-term Strategy Example

The previous section provided some general information on trading Forex long-term. Now let's look at a long-term strategy in greater detail: Let's say you are a Forex trader based in the US, and some political events have taken place that will likely impact the USD. Using the information you have at your disposal, you should analyse where the USD will go. If you think there is a good chance the currency will move in line with your forecast, you can begin your long-term Forex trading strategy by opening a USD pair position that reflects your prediction. But before doing so, you should consider where the second currency is likely to go. If you want to be conservative, pick a quote where you think the second currency will have the highest amount of stability.

For example, if the developments affecting your currency pair are tied to the Middle East, your analysis might reveal that Japan lacks tight trade agreements with countries in the region, and the Japanese yen (JPY) has historically enjoyed stability. This information might lead you to think that the perfect pair for this trade would be the USD/JPY currency pair. Once you figure this out, you should double-check your expectations, then list all known expected events and their outcomes. Covering all these variables is how you develop this, and any other long-term currency trading strategy.

How to Trade Forex Long-term

Long term trading strategy

Source: MetaTrader Supreme Edition - EURUSD Daily Chart - Data Range: 22 Apr, 2015 - 7 May, 2015

There are several tips that can use to enhance your FX trading. For starters, don't let your emotions affect your trading, because they can seriously undermine your performance. Turning losing trades into winning ones can be a challenge, but it can also be difficult to close a position out early, and lose out on potential gains. No matter what happens, stick to your strategy. Every time you open a position, predict where the currency will go and how large the price movement will be. You must also ensure that every trade has both a profit target, and a stop-loss. Always have them figured out before you start using a long-term Forex strategy.

Long-term Trading Best Practices

While everyone has a different approach to trading, there are some general guidelines that apply to most positional traders. These guidelines are based primarily on risk management, and the FX market's inherent nature. Let's explore how they might enhance your trading strategies:

Use Very Small Leverage

When performing positional trading, you should stick to volumes that make up a small percentage of your margin. One of your major considerations for long-term currency trading is ensuring you can easily sustain any common intraday or even intra-week volatility. Since a currency pair can easily move a few hundred pips in a day, you should make sure these price fluctuations won't trigger a stop-loss.

Pay Attention to Swaps

While trading Forex long-term can generate promising revenues, what really matters is profit. Pay close attention to swaps – the fee charged for holding a position overnight. Swaps can sometimes be positive. But in many cases, they will be negative regardless of direction, so evaluating their expenses is crucial to making long-term Forex strategies profitable. In some cases, you can use a strategy where the pip gain is small, but the swap is favourable for you.

Effort vs. Return Ratio

Keep in mind that even with the best strategy, you may not reach your profit target. This could easily happen if you use too little leverage. If you only trade with a small amount of capital, you should expect proportionate returns. Because of this, always consider the amount of time spent on trading, compared to the monetary rewards received. In most cases, you should use relatively large amounts of capital to make the effort vs. return ratio worthwhile. A great way to get a better sense of what return you will receive for your time without risking your capital is to open a demo account.

Forex Demo Trading Account

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Risk Warning

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.