Forex trading is quickly gaining momentum as a preferred trading method. While there are traders interested in trading Forex full-time, most are either short-term or long-term. They may hold salaried positions but they trade on the side.
Your style of trading will largely depend on two factors:
- How hungry you are for profits
- Your personality
A large number of Forex traders would rather opt for short-term strategies. As a result, lots of traders may be missing out on the chance to make huge profits. Long-term HK traders target longer pips while their short-term counterparts opt for the shorter ones.
In essence, this gives you a ratio of 30 to 60 vs 100 to 300 pips respectively.
Impact on Stop-Loss Placement
Markets are greatly affected by the time frame. Stop-losses, as well as profit margins, may be impacted negatively by a short-term time frame. This is because the Forex market is naturally volatile.
With long-term time frames, wider stop-losses allow the trades a longer stretch of time for the price action to happen. While the short-term trader has an advantage with regard to take-profits, there is the threat of stop-loss hitting first.
Benefits of Long-Term Trading
1. Wider Economic Factors to Explore
Long-term traders analyze more expansive economic factors which include:
- Interest rates
- Universal commodity prices
- Geopolitical factors
All these factors are bound to show long –term trends that would help the trader make better trading decisions. The trader will be in a position to choose advantageous entry points in light of the big market movements.
Short-term traders do not have this advantage as they mainly concentrate on the ‘now’. They are focused on trading news whereas the long-term counterparts look into past economic performances of their preferred markets.
The economic calendar is the short-trader’s preferred tool for tracking economic news dispatches. They seek to find out which markets have a big impact on the price action of various currency pairs.
This can present a number of serious challenges due to the uneven nature of the market especially around news time. Trading on pairs of currencies based on the latest news release can, therefore, turn out to be tricky.
2. Trading Expenses
The main trading costs in Forex trading are spreads; the cost of opening a trade. Short-term traders are adversely affected by this because they open multiple markets in a day. In addition, their profit targets are smaller than those of long-term traders.
These two factors combined make short-term trading more expensive than long term trading. The spreads could really reduce profits. The long-term trader barely feels the costs as they do not spend as much money funding trades.
In addition, their profits margins are larger. Even if they have other fees such as swap and rollover costs, these are negligible. Also, sometimes they are in the positive.
3. Managing Open Positions
Short-term trading does not support managing open positions because of the short stop-loss and take-profits. Also, there is the high volatility to factor in. As a result, they miss out on the profits that can be determined by managing open positions.
Long-term trading offers adequate flexibility to manage open positions and benefit from the same. Moreover, a long-term trader is allowed to adjust their trades to factor in fresh data releases. They can also exploit new opportunities and get accustomed to new technical systems.
Additionally, long-term traders have enough space to include positions that are performing well. This allows them to exploit every opportunity to make profits. It also allows them to reduce risks that would lead to losses.
In the end, long-term trading offers more to the trader in terms of benefits that would lead to making profits. It also gives you space to watch the market and take advantage of any changes that would favor you. Long-term Forex trading can, therefore, not be dismissed as a feasible trading strategy.