Long Term Forex Trading Strategy Guide

16 Min read

This article will explore long term forex trading strategy, 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) also have the opportunity to generate large profits.

Can You Trade Forex Long Term?

Can you trade Forex long term? Many traders have heard of short term Forex trading. One of the common forms of short term trading is day trading. However, long term Forex trading is also quite popular.

So, is long term forex trading better? How long can you hold a Forex position? How long can a trade last in Forex? What is the best strategy for long term trading?

Let's dive into the answers to these questions.

Some traders believe long term Forex trading is better than day trading. Some argue that long term investing benefits include larger profits. However, profits vary from one individual trading experience to another, so this can't be accepted as a general rule.

We can't confirm which is better, in general, because it's a matter of personal preference. Yet, this article will give you an overview of what a long term Forex trading strategy entails, how to do it, and some specific points to pay attention to while you are learning how to trade Forex long term.

What is Long term Forex Trading? How to Trade Forex Long Term?

Before we explore how to trade Forex long term, we must first understand what long term Forex trading is.

Long term forex trading can be summed up in three words – forex position trading. The idea behind this long term investing 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 want to use a long term Forex trading approach require thorough preparation and substantial knowledge before using it.

Long Term Forex Strategies for Trading FX

Depicted: MetaTrader Supreme Edition - AUDUSD Daily Chart - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admirals (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

Positional Trading - What is the top strategy for Forex trading?

What is the best strategy for Forex trading? While we can't say which is best, we can explain how long term trading (Forex positional trading) works. Positional trading exemplifies the long term Forex trading strategy. 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 a long term Forex trading strategy, traders buy based on expectations, and determine when to sell based on facts. For example, speculators like George Soros heavily shorted the British pound in 1992.

They were sceptical 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 a thorough analysis of the economies of the two currencies, and be sure to evaluate the potential for unforeseen events.

Depicted: MetaTrader Supreme Edition - Correlation Matrix - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admirals (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

Long Term Forex Trading Strategy: An Example

The previous section provided some general information on a long term Forex trading strategy. Now let's look at a forex investment 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 a forex long term trading strategy, and any other long-term currency trading strategy.

To discover more about long term Forex trading strategy in video format, have a look at this highly informative video below:

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4 Long-term Trading Best Practices

While everyone has a different approach to trading, some general guidelines apply to Forex positional trading. These guidelines are based primarily on risk management, and the FX market's inherent nature. Let's explore how they might enhance your long term Forex strategy, and in turn, your long term trades:

1. Don't Trade on Emotions

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.

2. Use Very Small Leverage

When performing Forex 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.

3. Pay Attention to Swaps

While a long term Forex investing strategy 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.

4. Effort vs. Return Ratio

Keep in mind that even with the best forex trading 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.

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Long Term Forex Signals

Forex signals are software programs that analyse the price action and send you signals that help you make trading decisions.

A long term Forex strategy will need a Forex signal that gathers deeper insight into the price action over a longer period of time to determine trading opportunities over a larger timeframe. These signals aren't as effective when analysing volatile price action in shorter time frames. This means that short term traders don't use long term Forex signals.

There is a wide range of Forex signal styles. Different trading signals are best suited for different trading styles. So, when traders are deciding which long term Forex signals to use, many of them aim to find one that suits their personal style.

There are many signals available for the MetaTrader 4 and MetaTrader 5 platforms. These platforms offer extensive data analysis to compare and contrast the performance of the signals used, to help you determine which long term Forex signal is best for you.

You can find this data in MetaTrader 5 by viewing the various tabs related to each signal provider from directly in the MetaTrader platform. This is under the "Signals" tab under the "Toolbox" section, shown below:

Depicted: Admirals MetaTrader 5 - Signals tab and Profile section of a signal provider.

This section from the MetaTrader trading platform offers a variety of useful statistics and information such as the:

  • Growth: A graph displaying the evolution of the trading signals' performance
  • Balance: The evolution of the account's asset
  • Equity/Drawdown: A graph displaying Drawdown and Equity as a function of time

Specifically, the "Trades" section can be very useful as it displays statistics traders can use to compare signal providers, as shown in the screen below:

Depicted: Admirals MetaTrader 5 - Trades section from the Profile section of a signal provider.

So, what can we learn from this information? There are more than 20 statistics offered in this window. Below are a few examples:

  • Trades: The total number of trades performed since opening the trading account
  • Profit trades: The total number of winning trades and the success rate
  • Loss trades: The total number of losing trades and the loss rate
  • Best trade: The total monetary value of your best trade
  • Worst trade: The total monetary value of your worst trade
  • Gross profit: The gross monetary gains you have generated on your account
  • Gross loss: The gross monetary losses you have incurred on your account
  • Long trades: The total number of long trades you have performed
  • Short trades: The total number of short trades you have performed

There are additional tabs, as well, that can be useful for traders trying to determine which is the best long term Forex signal for them. These include Growth, Equity, Balance and more sections, as shown below:

Depicted: Admirals MetaTrader 5 - Reviews section from the Profile section of a signal provider.

Traders use this section to help themselves find long term Forex signals. Discovering other traders' experiences with signals can provide a real understanding of what it's like trading with a certain signal provider.

Final Words

Long term Forex trading has its benefits. It is also a different experience than short term trading, so it may suit some traders better than others. Now that you understand the basics of long term Forex trading, you can use this information to decide whether or not long term trading is something you wish to try. If you're an experienced long term trader, some of it may be a useful supplement to your current trading strategy.

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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.

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