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Forex trading strategy

How to Plan a Long-Term Forex Trading Strategy

Using a long-term forex trading strategy has proved to be a very successful and lucrative trading approach that is widely adopted by professional traders. This strategy focuses on holding trading positions for long-term profits, considering all the factors that affect the currency pair. Long term in forex trading usually refers to longer time frames that may be days, weeks, months, a year, or even more. This is also commonly known as positional trading. 

A forex strategy is a trading technique that forex traders use to determine whether to buy or sell currency pairs in the forex market. Forex strategies can be based on technical or fundamental market analysis depending on your preferred analytic metrics. It is usually made up of trading signals that trigger buy or sell decisions. You can find different forex trading strategies on the internet or develop your own unique strategy using manual or automated analytical tools to generate trading ideas. 

Why is the Long-Term View Important? 

Having a long-term market view helps in assessing data correctly through a wider point of view. It is usually based on a blend of price technical analysis and fundamental analysis (economic conditions). 

Technical analysis is the study of historical price action in order to identify price patterns and predict the future movements in the forex market through the use of technical indicators and historic price patterns. While fundamental analysis is evaluating the price of a currency and the factors that could influence its value in the future, including external influences, as well as financial statements and economic trends. 

The long-term scale is very important in detecting overall price trends, excluding shorter-term price fluctuation which can be misleadingly interpreted. 

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Factors to consider in a Long-Term Strategy

Long-term trading requires preparation and deeper analytical knowledge. It is all about proper planning and price evaluation over the longer term. For your long-term trading to succeed, you need to keep an eye on the following factors:

Economic Fundamentals:

When deciding to trade a currency pair in the long run, you have to consider the economic fundamentals both locally and globally. Economic factors include the inflation rate, monetary and fiscal policies, interest rate, unemployment rate, economic growth, and political stability. All of these factors help you better evaluate the bigger picture. 

Technical Price Analysis:

After researching the fundamentals, now it is time for technical analysis. The best strategy you can use is the one that makes use of both methods. Use any preferred analytical tools to support your view. Check the trend and momentum indicators to have a clearer picture. 

Interest Rates:

In long-term trading, interest rates play a vital role in affecting your trades. First of all, any currency is directly impacted by changes in interest rates. Higher rates usually support a currency’s strength, while lower rates depress the currency. In long term forex trading, there is what is known as the rollover, either you are going to earn or pay interest. Traders buy the currency of higher interest against lower interest currencies. 

Benefits of Long-Term Forex Trading

There is a diversity of forex trading strategies out there, but trading with a long-term forex trading strategy has its unique benefits that include: 

  1. Lower Risks: holding long-term trading positions can offer a more stable income with less monitoring required. A trader doesn’t have to observe prices constantly nor to react with frequent market changes unless needed. Long-term trading can be more suitable for high volatile markets. 
  2. Minimized Stress: long-term trading is commonly known as less stressful. Trades are being held for a longer time discarding the short-term price fluctuations, which makes it less stressful. 
  3. Lower Initial Investment Requirements: unlike short-term strategies, the long-term trading targets more pips, which means higher gains. With a minimum initial capital, a long-term trader can target 100, 200 or even more pips instead of hunting smaller pips in short-term trading. 
  4. Saving Time: long-term strategies require less time for monitoring charts and price movements than short-term trading. The trader will initially have to spend time evaluating the market trends and positioning, with minimal observation needed over time. 
  5. Lower Trading Costs: the spread incurred for every trade affects the overall cost of trading. The spread is the difference between the bid and ask price of a currency pair. That is usually measured in pips, the smallest unit of price movement. The larger the gap, the higher the spread. For long-term traders, the spread has less effect on the overall trade unlike short-term positions that should take the spread costs more seriously into consideration. 

How to Develop a Forex Trading Strategy

Before choosing a forex trading strategy, make sure to define what type of trader you are. It is not always easy to find the proper strategy, you may have to test several ones until you find the strategy that best suits your trading style. Some factors to consider while picking the best strategy are; how much time you can commit to trading, which currency pairs you trade, the size of your position, and your trading goals. 

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Tips for an Effective Long-term Trading Strategy

Set your Trading Mindset

The trading mindset is the key factor behind successful trading and it is something that every trader should work on and develop constantly. Establishing a motivating trading mindset will help you to easily maintain your self-discipline when trading challenges your mental energy. For some traders, the buzz of short-term trading can be a thrilling factor. While to others, long-term trading may seem a dull or boring process. 

Setting your trading mindset according to your strategies is essential, as well as understanding your individual trading goals. The trading process encounters emotional and psychological factors that may affect decision-making. 

Once you manage to nullify these factors and manage to keep your thoughts and feelings under control, you can achieve profitability. You’ll need to understand the challenges of long-term trading and learn to overcome them by setting the proper mindset. 

Stick to your Strategy 

To trade effectively you need a reliable strategy that works in the long term. A successful long-term forex trading strategy can be developed using market research and having a clear plan. The changeable nature of the market may demand frequent changes to your trading strategy.  But if you’re lucky enough to develop a strategy that is effective enough, you’d better stick to it as long as it works. 

Keep an Eye on Weekly Charts 

In long-term forex trading, daily and lesser time frames are not significantly as important as longer frames. Weekly charts give you a clearer view of long-term price trends. They also require less obsessive monitoring, which provides better time management and less trading stress. 

Calculate Costs

Despite being cost-effective in terms of spreads, long-term trading involves different costs that need to be considered as well. These costs are known as swap or rollover. The interest is paid for a trade that is held overnight. Understanding the forex swap and rollover is essential for planning a long-term forex trading strategy. 

Set Profit and Stop Loss Levels

An essential element in any forex trading strategy is balancing both profit and loss potentials. This is known as forex risk management. When trading for long-term, you have to consider setting the take profit and stop-loss levels. The take profit is the price level targeted at which a trade will automatically close on profit. The stop loss, on the other hand, is the price at which the trade will also be automatically closed to stop further losses when the market moves against your trade. Both levels provide rational levels for trading, away from the emotional engagement that may occur. 


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