How to Plan a Long-Term Forex Trading Strategy

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.

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 currencys 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:

• Lower Risks: holding long-term trading positions can offer a more stable income with less monitoring required. A trader doesnt have to observe prices constantly nor react to frequent market changes unless needed. Long-term trading can be more suitable for high volatile markets.

• 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.

• 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.

• 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.

• Lower Trading Costs: the spread incurred for every trade affects the overall cost of trading. The spread is the difference between the bid and asks the 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.

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