Long Term Forex Trading Strategies 8



 

Forex trading strategies usually vary from trader to trader, with most traders customizing their strategies to their own particular trading style and personality. While many novice traders tend to prefer trading in the short term since it gives instant gratification and can reduce overnight risk, long term forex traders usually consist of more experienced and seasoned traders.

Long term traders also generally approach their forex trading more as a form of investment than trading or speculation, and this is especially true of carry traders. Long term trading styles also tend to be more trend oriented, and so they may require larger amounts of capital to hold margined positions that go against the trader, depending on how well they have timed their entry into the market.

 

Trend Trading

Trend trading is by far the most potentially profitable forex trading technique, when correctly executed. A trend trader will usually start by identifying the major market trend. They will then wait for optimum market entry conditions, such as a correction, before initiating a position in the direction of the trend.
While this may sound relatively simple, most inexperienced forex traders cannot distance themselves sufficiently from the market to establish and maintain a long term position. Also, many inexperienced traders lack the funds needed to weather adverse market conditions sufficiently to stay in the market while following a trend.

Some long term trend traders establish their positions in several parts, getting in on a certain percentage of the desired position first and then averaging the position over time. This allows them to scale into their positions gradually at different stages of the overall market move. Furthermore, some long term trend traders will wait for a corrective move against the direction of the trend before taking on a significant trading position or adding to one.

Many long term forex trend traders prefer to trade well established trends in the major cross rates, rather than in currency pairs involving the U.S. Dollar since liquidity and dealing spreads are less significant to their trend trading style than substantial directional movements based on interest rate differentials.

 

The Carry Trade

Another popular long term trading strategy that is often implemented by major financial institutions, hedge funds and large individual traders, is known as the carry trade.

The carry trader exploits the differential in interest rates paid out and charged on two different currencies, with the trader going long the high interest yielding currency and shorting the low interest yielding currency. This nets the trader the difference between the two interest rates and pays the trader interest on a daily basis.

As a result of the increasing popularity of the carry trade among financial institutions, large flows of liquid investment capital have moved into the Australian Dollar, which currently carries a relatively high interest rate that investors tend to find attractive in low risk market environments. On the high end along with the Australian Dollar, is the New Zealand Dollar.

Conversely, investment capital has flowed out of currencies more suitable for borrowing in, such as the Japanese Yen and the U.S. Dollar, which has a short term benchmark interest rate of only.

For more information on Forex trading, click here.

Guest post by Sara Mackey

 

For more forex and economy related articles, check out our forex education section.

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  • Are you a short term or long term trader? I would love to hear from you!

  • Elmar Votri

    Hello!

    Sometimes I get some short trades but all my studies are focused to learn long term trades. By this I try to make daily and weekly analisys and only go to small timeframes to filter my enter point. The idea is: “cut your losses short but let your profits run.” I´ve read a lot of books, and I often read profissional trader telling that a long term trader have more chances to succeed, and with this I agree.
    But, I believe, due to the many books I´ve read, you have to have a sistem for your trades and follow it religiously because if you do not follow a particular sistem you´ll be roam around the market looking for every oportunity to trade and in that you can make a lot o f mistakes. Sun Tzu tells in his book The Art of War that If you don´t know you and neither you enemy you´ll be imperilled in every battle, but if you know you and either your enemy, you´ll enter just only the battles you know you´ll win!

    So, I do prefer learn long term trades, but if you like other strategy my advise is: if it fits you best and let you have good results, follow it religiously and you´ll be fine. but if no, learn to change and keep learning from mistakes.

    See you koalas and have a nice weekend!

  • Elmar Silveira Votri

    Below on of my comments right before I took an invitation to write to TheGeekKnows.
    I´m very proud of this task!
    Is a pleasure to write here and thanks for all I have learned. 🙂

    • I think I speak for everyone that having you with us is one of the best things to happen to this community.. Thank you buddy !

  • ιωαννης σαχας

    carry trades are non existent theese days, due to very low interest rates…i dont like trend trading as well… my view is that markets are moving in a range and that’s where i have to choose which level might act as a resistance or support…however i respect the trend, as strong momentum may blow my contrarian movements away, for instance i wanted to short the silver futures, thank god my stochastic wasnt in an overbought region, literally saved me ….guys please have a look at natural gas( ITS THE FIRST TIME I LIKE THE TREND), there’s a good chance for long opportunities….as a range trader I shorted the resistance & top of the channel , BUT break out so possible now that tapering is postponed, i will reverse my short monday …. another good trade for you fellas by a buddy who’s an experienced futures trader…..sell october buy november crude oil futures….difference is huge , i believe this spread will be filled, worth trying to get 1-2 dollars out of this trade ……share your thoughts!!!!

    • Range trader there eh? :p

      • ιωαννης σαχας

        range in terms of buying supports selling resistances , even when that’s contrarian to the trend