Short-term or long-term trading – all pros and cons

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Short-term or long-term trading - all pros and cons

As a rule, all traders can be conditionally divided into two large groups: day traders (trading within the day) and long-term traders (making up to 10 deals per year). Almost all newcomers to Forexthey start with short-term trading, as they want to be constantly in the market, concluding from 100 to 300 transactions per month, or even more. Later, many of them begin to realize that sometimes it is better to skip a few dubious signals and choose one, but a better one, which can bring more profit. Such traders are committed to long-term trading. They can wait long enough for the right moment to enter the market in order to then keep the deal open for weeks, or even months. Other traders achieve mastery in short-term trading when they understand that statistics are on their side, and out of several hundred closed trades, the number of profitable ones prevails over loss-making ones. Let’s take a look at what are the main differences between short-term and long-term trading.

Short-term trading strategies

Short-term trading is the most profitable, but at the same time, the most risky way to make money, since trading is carried out within the day, and it is rather difficult to predict the price movement. Short-term trading includes scalping (pipsing) and intraday trading . Scalpers usually trade on timeframes from M1 to M30, and the duration of the transaction ranges from a few seconds to minutes. The profit on such trades is minimal (hence the name of the trade “scalping” – scalping, small profit), but the number of trades can vary up to 100 per day or more, due to which a high profit is achieved. However, frequent triggering of stop losses is not excluded ., which can nullify all efforts and lead to large drawdowns, so this trading style is highly risky. In addition, many brokers prohibit pipsing and cancel all trades that are less than 5 minutes long. If you want to use this trading method, then see the rating of scalping brokers that officially allow pipsing.

Another type of short-term trading is intraday trading, which is usually carried out on timeframes from M15 to H4. It is less risky in contrast to scalping, since the number of transactions is within 1-2 per day. Intraday strategies are based on finding patterns at the junction of trading sessions . For example, a breakout of the flat channel at the beginning of the European session, a breakout of yesterday’s high, or a price rollback after the close of the American session. Profits are usually fixed at the end of the day or when a specific goal is achieved. Also, strategies of rebound or breakout of horizontal levels are actively used . You can find all these and other strategies on our website.

Disadvantages of short-term trading

The undoubted advantage of short-term trading is its high profitability, since you are constantly in the market and do not miss a single signal. But this is also the reason for the increased risk. Due to the high market noise, you cannot predict exactly where the price will go during the day, you can only predict small impulses. Technical analysis is used to forecast prices on small timeframes , but it is ineffective during important news releases, which literally turn the price upside down. Therefore, it is highly discouraged for beginners to trade within the day; only professionals can effectively use day trading methods.

Secrets of short-term trading

If you do decide to follow this path, then we offer you the following recommendations that will help you in this difficult, but very profitable business:

  • trade only in the direction of the main trend , close the position when the first signs of a rollback or correction appear;
  • follow money management , do not risk more than 5% of the deposit in each transaction;
  • do not forget to place stop losses;
  • master the tools of technical analysis – horizontal levels and trend lines ;
  • set profit and loss limits for the day, after reaching which, do not trade on that day anymore.

A good help for an intraday trader will be the book of a practicing trader Larry Williams “Long-term secrets of short-term trading”, in which the author shares his experience of promoting a deposit from $ 10,000 to $ 1 million per year. In his book, Larry Williams talks about the basic principles of short-term trading, the three time and price cycles, optimal entry and exit points, and much more.

Features of long-term trading

Long-term trading is a special type of trading based on trend following. If for short-term traders the price movement forecast is carried out using technical analysis tools, then the long-term trader should first of all be guided by fundamental analysis. Of course, on daily, weekly and monthly timeframes, technical analysis is not only still valid, but also gains even greater strength and accuracy than on small time intervals, but the trader must understand what drives the price at one point or another. Only in this case can he count on the success of his strategy. What is long-term trading? Here the trader acts as an investor. Before entering a trade, he waits for the best time, analyzing the price dynamics on different timeframes, that is, it tries to predict changes in market trends and catch a trend reversal. After the right moment is found and the trade is opened, the trader continues to analyze the market, assessing the strength and duration of the trend. A deal can be closed in a month, six months or a year – it all depends on fundamental factors.

Disadvantages of long-term trading

To trade on long-term strategies, you need to have iron restraint, as there will always be a desire to close a deal faster and take profit. But this is the essence of long-term trading – to open a deal at the very beginning of a global trend and hold it until the trend dies out. Put yourself in the shoes of investors who invest their money in promising young companies, and get a return only after years, but what a return! This leads to another drawback of long-term trading – the need for large capital, which must amount to tens of thousands of dollars. The number of transactions usually does not exceed 5-10 per year, and if you open 0.1 lot positions and hold for six months, you will lose more on swaps than you earn.

What should long-term traders trade?

Many long-term traders trade American stocks and CFDs as the US stock market is growing and you can make good money on this without much risk. Even American retirees buy shares through their brokers, as they see this as a good addition to their retirement, they also have special retirement accounts for this. The main thing is not to invest in one company, but to diversify risks. In addition, you can speculate on commodities ( oil , gold , wheat, etc.). Well, no one forbids you to trade currency pairs , although it is a little more difficult than stocks because of their high volatility.

See also the rating of CFD brokers .

Medium-term trading

Medium-term trading is a cross between short-term and long-term trading. More than half of all players in the foreign exchange market are medium-term traders. Trading is usually carried out on H4 and D1 timeframes, and the duration of the transaction ranges from one day to several weeks. A good example of such trading is the Price Action strategy…. For medium-term traders, there is no need for large capital, it is enough to have at least $ 500-1000 on the account, while the risk decreases compared to short-term trading and the number of transactions increases to 30 per month compared to long-term trading. When trading medium-term strategies, you can increase your initial capital for several years, and then, if you wish, combine it with long-term trading. The main thing is to observe money management and do not risk more than 1-2% of the deposit in one deal.

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