Currency trading sometimes needs patience and consistency, especially if you aim for maximum profit from big price movements. Here is a complete guide on how to long-term trade the right way.
A trader's style is different from another. Some of them believe in short-term trading while others use long-term trading. A short-term trader usually uses small time frames, between a 1-minute time frame to a daily time frame. The trading results are usually known immediately.
Meanwhile, every trader who chooses to trade in the long term must indeed work more carefully. They are usually characterized by the following traits:
- Each open position could take weeks or even months to accumulate the targeted profit.
- As opposed to short-term trading, this strategy is focused on big time frames (normally higher than the daily time frame).
- Big picture analysis is one of the long-term traders' ingredients in perceiving the market situation.
The Long-term Trading Perception
Many people believe that long-term trading will lead you to be more successful. However, most traders, especially beginners, tend to prefer short-term trading since the implementation needs less time. If you focus more on the chart, the trend created in a small time frame is a temporary price trend. On the other hand, the bigger time frame can show a clearer and fixed price trend. That's why many professional traders prefer to trade with a long-term strategy.
The following example shows how a short-term trading mindset on the 4-hour chart of EUR/USD:
On the above-mentioned chart, you see many bullish momentums move to the higher tops. From this perspective, you can see that the trading setup is based on the bullish continuation tendency and it will be great to focus on looking for buy positions. However, from a long-term perspective, the story is entirely different.
The weekly chart above shows that the EUR/USD pair is still on a major downtrend. It means that the bullish movement on the 4-hour chart is only a pullback. If you watch the chart a little bit more carefully, you will see a bearish bounce from a resistance level. For a short-term trader, this phenomenon will see as an opportunity to buy from the pullback.
What the short-term trader might not realize is, it is not a good opportunity to enter on a pullback. Why? Because the bearish wave serves as the continuation of the major downtrend. It is shown by the way the price keeps moving down for two weeks after! As a short-term trader, this is like an unplanned and big reversal.
Meanwhile, for a long-term trader who puts their perspective on a bigger price chart, the trend continuation will be immediately recognized. They already expect it based on the market flow. Here is the weekly perspective of the price movement:
The comparison above shows why it is important to have a long-term perspective on the market. Many traders conclude that only by monitoring the 4-hour to daily chart is enough to have the perspective of a long-term trader. Meanwhile, they actually ignore the time frame of the real long-term outlook. The bearish bars of the weekly chart will badly affect the traders who would try taking the Long position from a pullback perspective.
How to be A Long-term Trader?
To be a long-term trader, you have to be patient and have good self-control. It is because one of the keys to a long-term trader is to be able to wait patiently. Why? The long-term strategy usually holds trading positions for days, weeks, or even months. If you don't have a strong mind to wait for the floating position, it is better not to follow this strategy because you will feel bored and stressed.
In most cases, your position would suffer from temporary loss for a period of time before the price moves back to its major trend. Sometimes, the loss can reach up to 100 pips. If you don't have proper money management, it will cause more loss that eventually leads to Margin Call.
6 Easy Tips to Apply Long-Term Trading
You need a good strategy if you want to be a long-term trader. Among the many ways that you can use to have long-term trading, one of them is predicting price trends based on certain technical indicators. Follow these easy ways to apply a long-term trading strategy.
- Check the monthly or weekly chart.
The first long-term trading strategy is monitoring the price movement on a weekly or monthly chart. Then, find the trend of some pairs that have good direction and momentum. Identify the trend direction, whether it is bullish or bearish. Find the right moment to put the open position (OP) based on the trend direction. When the weekly chart moves down (bearish), you have to find the opportunity to have a sell position. Don't worry if you experience minus selling because the purpose is not taking any profit yet at the moment but in weeks or months.
- Zoom in on the daily chart and the Fibonacci Retracement lines.
The important thing to know about the Fibonacci lines is that they need to be drawn from left to right. If the price moves up, the Fibonacci line is drawn from the Support to the Resistance point. Conversely, when the chart is in bearish direction, the Fibonacci is drawn from the Resistance to the Support point.
- Find a pullback in the daily time frame.
Every day, find the pullback on the daily time frame on the 38.2, 50.0, or 61.8 Fibonacci level. If the price is getting closer to one of the three key levels of Fibonacci, get ready to make an entry position.
- Find a candlestick pattern.
It is better to find a certain candlestick pattern after the Fibonacci level meets the price. As soon as the price meets the Fibonacci level, it means you are in the "waiting for signal" mode. In other words, you only need to get the confirmation signal for making an entry. For this strategy, the signal is a candle with a long shadow and a smaller body. In the bearish scenario, an ideal candlestick for confirmation has an upper shadow that is longer than the body, and it has tested the Fibonacci level.
- Place the Take Profit and Stop Loss.
Always use the 1:3 risk/reward ratio, or at least 1:2. In a weekly chart, draw the horizontal helping lines on the Support or Resistance area where the candlestick of the previous period bounced. They can be utilized to determine the ideal Stop Loss, where you can base the profit target according to the risk/reward ratio rule.
- Wait for the position to conclude itself.
In long-term trading, you must never try to manipulate the floating position without any logical reasons. Just believe in your strategy and let the trade run. Trading is a matter of calculation and speculation where the strategy is tested. If it works well, it means profit; if it doesn't work well, it means loss.
The key is to try to get profit consistently and make it overcome the loss. If you apply the strategy consistent with the rule and the money management, the profit and loss ratio will be in your control, and your account trading likely stays profitable.
One thing for sure, you must control your emotion and avoid entering the market if there is no signal. One of the biggest mistakes that traders often make is overtrading.
A successful long-term trader is determined by his ability in analyzing the market trend and controlling the trading emotion to stay calm and disciplined. Long-term trading means profit because the profit won't be gained at the moment of trading. You need to wait patiently for days, weeks, or even months. The drawback is, if the strategy does not work well, you will waste your time and money.
Long-term Trading Management
Good management in long-term trading will lead you to a good opportunity in getting bigger profits if you know the way to apply it wisely. Good management also determines your final result because you will not get the profit at the moment of trading. In forex trading, a long-term trader will stay in the market for a long period of time. The exit will be triggered only after the maximum target is already reached.
So, don't be anxious if you see negative equity that may reach 100 pips or more. This is a normal thing in long-term trading. Therefore, long-term traders give their best effort to minimize their risk so that they can endure market fluctuations for a longer period of time. Putting that aside, what are the advantages of long-term trading management?
- Getting a Big Profit in One Entry
The first thing you need to know is long-term trading gives a big opportunity to get a big profit in one-time trading or one entry. Moreover, if your analysis is accurate, you can use it consistently as your reliable trading strategy in the long run.
- The Psychological Pressure is lighter
A long-term trader does not need to monitor the chart every hour of the day. In other words, you can save more time and still can do other daily activities without having to think about market changes several times a day.
Long-Term Trading Does Not Equal Big Money
When we talk about long-term management, we will think about the big amount of money for one trading position. It is not entirely true, as you may win big in pips, but it does not always translate into big money too. This is due to the importance of keeping your risks minimum and tolerable. If your account can't stand big market volatility for a long time, then you need to seize down the trading position to minimize the exposure. Therefore, the amount of money for a profitable position may be smaller than what you expect.
For instance, in a EUR/USD trade opened in a USD account, here is the general profit per pips from micro to standard lots:
- Lot 0.01 = $0.1
- Lot 0.10 = $1
- Lot 1.00 = $10
The long-term trading strategy:
In the weekly time frame, EUR/USD is rising in a strong uptrend. You plan to buy at 1.10190 and put the first TP at 1.1350, while the second one is at 1.1621. If the price rises according to your estimation, the profits' calculation will be:
1.1350 - 1.1019 = 331 pips
1.16210 - 1.10190 = 602 pips
Since the trade size is 0.01 lot (0.1 dollars per pips), the profits will translate into:
331 pips x $0.1 = $33.1
602 pips x $0.1 = $60.2
Although what you see is some hundred-pip profits, actually, it is just some tens of dollars. This is what trading management by size position means.
The key is, if you are worried to face a big risk in long-term trading, the solution is not by increasing your balance exponentially.
Instead, you can downsize your lot and build consistency for your winning trades. You can upgrade the position size later after you are more experienced in facing the risks of long-term trading.