The best long-term Forex trading strategies: a guide

Success in any endeavour requires a solid strategy in place. Forex is no exception to this rule. This day and age the Foreign Exchange Market is instrumental to the functioning of financial markets and entire economies. Forex is the torchbearer of globalisation processes and a thematic heir to the roots of international trade. For centuries countries imported necessary resources to their shores while exporting important products abroad. Gold, to which most countries currencies were pegged to allowed for the industrial age and progress to occur. However, nowadays the market value-based system is used in most countries. This system controls the value of currencies via forces of demand and supply.

Why should you consider a long-term Forex trading strategy?

While people worried over the pitfalls of the 2008 financial crisis, Warren Buffett bought in and help his positions. The decision ultimately paid off for the World’s most prominent long-term investor. But long-term trading isn’t limited to people like Buffett. Being willing and confident in your choice enough to hold a position for years on end is achievable for a regular trader. It is the ultimate, but not the only form of long-term trading.

Everyone wants to be rich. Everyone wants to make money from home. Not everyone succeeds. However, even if you are successful in online trading, you will still end up spending tons of hours and sleepless nights next to your laptop. Trading and especially short-term trading is a time-consuming job. This is the time that could be spent pursuing more money or other endeavours in your life. It’s tempting to trade Forex by using short term strategies like scalping or intra-day trend riding. Gains and the processes of short-term strategies attract a lot of people. In fact, the majority of people entering currency trading rush to scalping without a sound idea of what they’re doing. Maintaining a wide perspective and keeping awareness on multiple levels is needed to succeed. These levels include but are not limited to: Technical, political and macroeconomic aspects of your trades.

Why the timeframe is important

Long-term trading is in fact conceptually quite similar to short term trading. Timeframes are the main difference between the strategies. Choice of a timeframe defines your expectations and perspective.  Charts are highly deceptive. It’s extremely easy to be manipulated by statistics. Let us illustrate how short-term data can be misleading. Look at the 24-hour chart of GBP moving against USD presented below and check out the numbers. What do you see? Is the British pound about to pull back from an upward trend? One might assume that and rush to sell the position he bought earlier that day.

However, let us not rush to judgement. Instead, let’s now take look at a month-long chart of price movements of this particular currency pair:

The above chart presents us with a different picture of what’s going on with this potential trade. People checking out these numbers might decide that the day’s run is was actually GBP/USD recovering from a pullback in an upwards trend.

But let’s zoom out even farther:

In this last chart, you’ll notice another thing altogether. It would seem that the currency pair has had a major monthly resistance point for the last 8 months. The point that it’s already close to reaching. This adds yet another dimension to your trade and decisionmaking. Ignoring the bigger picture can land anyone in serious financial hardship.

Make the correct choice for you

Short term trading can indeed land you more profit in a small timeframe. It can also land you more losses or even discourage you from trading altogether. That is in case you jump in head-first and without due research or knowledge. Which is what a significant number of newcomers to currency trading and investment do.

Let’s put it into perspective: You might be making three times the money another trader using a long-term trend trading Forex strategy makes, but work six times as much. What sounds like a better alternative? Riding intra-day trends and signals 16 hours a day or spending that time to open well-researched, diligently analyzed positions that will require little maintenance?

Your answer might be the former. That’s perfectly fine. Every trader has to choose their own path to take. Some people genuinely prefer and enjoy the rigid routine and nerve-racking excitement of short term trading. Some people are also very good at it. If, however, your particular temperament and work goals are better suited for long-term trading, there is a number of peer-tested and time-proven strategies to educate yourself on and employ them to your benefit.

Verified long-term Forex trading strategies

People that use long-term trading strategies do so by researching a trade with all its variables. Then they buy a currency or a currency pair and wait for their investment to pay off. However, Forex trading research is a daunting task. Correctly predicting currency movements and capitalizing on your understanding of ongoing processes is harder still. You don’t always win. Successful investors using verified long-term Forex trading strategies consider 50% or more win rate an achievement. One of the most valuable tricks in the game is learning how to minimize your losses.

Other key moments are having a thorough game plan and a no less thorough understanding of it.  Equally as important is the term of your investment. Different investments made for different time periods require differentiating strategies to employ. Investors hold positions for minutes, hours, days, months or even years as a result of their respective strategies.

Forex trading is as much an emotional and mental endeavour as well as a financial one. Individual bias and simple human error are major players in the financial market. Many traders want to bet larger capitals on singular trades to boost their potential returns. This trend is one of the reasons why a thorough analysis of market conditions and individual trades has become a well-researched discipline in trading. The trend carries its dangers, of course. An unexpected plunge can be extremely destructive. It might obliterate an investor’s entire portfolio. The financial market is a volatile environment and has very few constants. This is why diversifying your portfolio is one of the most important and basic lessons one will learn in trading.

Let’s review some peer and time-tested strategy for long-term trend trading Forex. In this article, we won’t discuss day trading and scalping, which are two very popular short term trading methods. Instead, let’s talk about some of the more restrained, financially prudent strategies.

Carry trade

Carry trading implies borrowing a low-interest rate currency and investing the money in a currency with a higher interest rate. The strategy can cause problems for currencies. It’s an expert Forex broker opinion that this practice is linked to sudden currency value depreciation and appreciation. Carry trading is often used during the times in financial history when globally exchange rates are relatively stable. It stops being popular when a liquidity shortage happens.

The practice of carry trading carries its risks and rewards. When used properly, it allows the investor to profit off of the interest rate difference in a currency pair. When unlucky, the pair might switch and the investor will take losses. The tactic will turn deadly on the user if an unexpected price fluctuation happens.

Moving average trading

Moving average trading refers to a large number of research and technical analysis tools. It’s a statistic device that analyzes large pools of data to form average values. The toolkit will take several weeks worth of data and analyze it to create an average. Then, it will continue to create these averages in the exact same time increments in order to form a moving average value. In instances when the moving average has been rising consistently over the year, short term trading is better advised in order to maximize one’s gains. If the average is showing a trend of declining, long-term trading or no trading is better suited, depending on the individual occasion.

This long-term trend trading Forex strategy is used with different market tools and statistical devices. The investor buys the currency when it’s over the moving average, selling it when it dips below. Candlesticks are often used to largely automate the strategy and utilize it to its full potential.  Moving average trading is an effective strategy. A knowledgeable, diligent trader can utilize it well.

Position trading

The Forex market remains in a state of perpetual flux. In an unstable environment like that, being able to effectively navigate the market swings is extremely important. This is where position trading comes in. Position trading implies holding your trade positions for weeks or months on end. It is is an effective way to block out some of the noise that these constant changes in the market make. It allows an investor to remain unbothered by small fluctuations in his positions. Spikes or plunges in price due to reactionary decisionmaking of traders around the World will not panic him. This is a strategy that entails carefully forming a trade that you will be comfortable to hold on to. It attempts to capitalize on significant fluctuations in the market and relies on well-researched macroeconomic factors as it’s driving force.

This is not a particularly simple long-term Forex strategy and it comes with its upsides and downsides, naturally. It possesses a lower intrinsic risk of failure but also requires significant investment to utilize it in an effective way. Position trading also benefits from good fundamental knowledge and analysis. It carries a heightened risk to those unqualified or unwilling to perform diligent preliminary research. Finding a major trend you can ride for a significant amount of time is not an easy task.

Forming and maintaining a position entails detailed awareness of the factors affecting the movement of the currency/currencies in question. AUD might be preparing for a rising trend against USD because of specific macroeconomic and/or political factors in Australia. A trader needs to be aware of the factors at play and be able to access the information the technical tools provide for him in order to form an informed opinion and consequently – a successful position.

Negative aspects of position trading

Position trading strategy requires a larger stop-loss to be put in place since the expected volatility for a long-term position on a currency pair is quite high. This raises the potential for the money you can lose on a single trade. It’s one of the reasons that discourage some people from long-term position trading.

The swap interest rate is another reason why some people dislike this particular strategy. It is a fee based on the interest rate differential in a currency pair. This fee is applied when you hold a position overnight. A swap doesn’t have to be negative, but it usually is. With large sums of money typically associated with position trading, this can become a problem.

Swing trading

We use the word swing in instances of important shifts in the financial market, i.e when singularly significant changes happen, trades breakout, moving averages plummet etc. These instances make the traders adjust and reevaluate their game plans and offer them an opportunity for swing trading.

During swing trading, investors analyze the patterns and adjust their trade plans in order to make a profit. Professional, experienced traders utilize this strategy most effectively. These people have access to a deep level of knowledge in technical analysis and long-term Forex trading signals. Swing trading allows them to utilize these skills to a full extent. During swing trading investors usually hold positions for several days, maybe weeks.

Swing trading is a different ball game from position trading as it allows for some amazing gains if utilized effectively. It’s also a dangerous strategy to tackle without due research and necessitated carefulness. If you intend to dabble in this particular strategy, it’s a good idea to gain a thorough understanding of the technical tools available at your disposal. You should tackle swing trading only after researching Forex tools and basics.

General guidelines

Each individual investor has his own mental and tactical approach to trading. However, there are some general rules. These are the guidelines that people searching for a simple profitable long-term Forex trading strategy should adhere to.

1. When tackling position trading, you need to keep the leverage low and only use a small percentage of your margin. Following this tactic will allow you to better withstand price fluctuations that are an integral part of long-term currency trading. Currency pairs can be and often are highly volatile. This volatility means that you must make sure that your position won’t trigger a stop-loss mechanism. Managing leverage and margin is an important part of that.
2. Diversify your assets. Use different currency pairs. Try not to entrust all your funds to a single broker. This is not a requirement, but using different brokers is a common trend among long-term Forex traders.
3. Be always aware of swaps. A high-interest rate can turn a profitable position unfavourable. A low one can turn a less profitable position into one worth holding.
4. Be aware of all the fees brokers charge you. A rollover fee is applied for maintaining a position over certain amounts of time and comes on top of commissions that you’re already charged with when making a trade. Keep your fees well managed. This is a key part of the best long-term Forex trading strategy.
5. When trading, it’s important to keep in mind that your rewards will be directly proportionate to your investments. It’s unwise to expect to make millions from the $500 you invested into your account. This means that if you use too little margin, the profit you make may not be worth the effort and time you will spend trading, learning and analyzing the market.

Forex long-term strategy summary

To summarize, there’s no singularly successful path to take when embarking on a journey to Forex currency trading. Every trader, which is to say – every person’s brain and emotions function differently. There’s a multitude of strategies, timeframes and approaches you can employ. There’s a sea of opportunity, information, misinformation and outright fraud on the internet about Forex. As mentioned, currency trading and investing, in general, is as much a money game, as it is a mind game. Some individuals are risk-prone, others are more restrained and risk-wary. Some people function well under financial threat and stress, others – not so much. It’s important to master the Forex long-term strategy indicators and maintain these healthy practices:

1. Avoid opening positions based on non-credible data and/or unsubstantiated opinions
2. Diversify your portfolio
3. Keep careful track of fees, margin and leverage usage
4. Choose your broker carefully. Safety of your funds should be of utmost concern.
5. Do not be against the market trend unless you have extremely credible information to base your decisions on
6. Always have an exit strategy in place
7. Practice on a Forex demo account before risking your money
8. Educate yourself on Forex technical analysis tools before risking your money
9. Keep in mind that technical analysis isn’t immune to bias and faulty judgement. Don’t view it as gospel
10. Manage your expectations
11. Don’t get attached to your trades

Long-term Forex trading is for people who don’t want to/can’t afford to trade full-time. It’s a style of investment that requires significant time and energy allocation but isn’t nearly as daunting as strategies with short or extremely short timeframes. Regardless of the strategy used, currency trading is complex and it is by nature risking your money.  Therefore, before investing your time and money into it, it’s extremely important to research, seek qualified advice and learn about risk management.