Short Term Trading VS Long Term Trading

People always want to find the best type of trade to invest in. This particularly holds true for short-term and long-term trading. This decision, however, varies from person to person. Ideally, the trader must decide on a trading type that best suits his/her personality.

Let’s us take a closer look at short and long-term trading to gain some insight.

Short-term trading

When the duration between buying and selling ranges from a few days to a few weeks, it is considered as short-term trading.

Pros of short-term trading

Faster means of making money: The benefits of a trade can be realized in a short period through this method. You can earn profits within a day by investing in intraday trading.

Short-term risk: If you discover that a wrong decision was taken on a trade, you can free up the capital invested and reinvest it in fresh stocks. This is because capital is at risk for a shorter period.

Cons of short-term trading

Volatile market: There are chances that you may lose a significant amount of money while indulging in short-term trading due to the volatilities in the share markets.

Stress: The unpredictability of the share markets makes it difficult to figure out the future status of your capital. This, in turn, increases your stress levels.

Time-consuming: Short-term trading demands a lot of attention. You need to continuously check the market in order to make buying and selling decisions.

Long-term trading

When the duration between buying and selling ranges within a few months to a few years, it is referred to as long-term trading.

Pros of long-term trading

Less stressful: There is no need to constantly follow the market when trading long-term. You can ignore the current market conditions and focus on future market conditions. Put simply, you don’t need to babysit your stock.

Time-saving: You can dedicate the time saved from constantly following the market on other productive activities. You can study other stocks and do thorough research before making buying or selling decisions.

Compounding: Long-term trading helps you take advantage of the power of compounding. You will be able to invest the dividends back in the market to earn more profit.

Cons of long-term trading

Chance of missing out: Long-term trading requires you to invest your capital for a long-term, and you might miss out on a volatility in the market to make money.

In-depth knowledge: Long-term trading requires you to have in-depth knowledge of the sector or stock you are investing in. You just can’t make decisions based on certain news or hearsay.

Homework/Research: You need to do your homework if you are going to trade long-term as you just can’t rely on graphs or charts to make a trading decision.

Patience: Long-term trading requires a lot of patience and the failure to meet it will create problems for the trader in the long run.

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5 Ways for Profitable Forex Trading

Forex Trading is profitable if the trader has taken care of following points:

Trading style:

Identify what type of trader are you. Both will have different roles in trading.
* DAY TRADERS– Short term trading opportunities, higher risk, quick and responsive.

*POSITIONAL TRADERS- Long term opportunities, patient and emotionally balanced.

Trading Plan:

Having a Forex trading plan is one of the key elements to becoming a successful Forex trader. Many traders never even make a trading plan, let alone use one regularly. It’s very important that you do both; make a trading plan and use the one you make…don’t just make one and then never look at it like many traders do.

Trading Plan Helps you to:

*Assessing your skill
*Set your risk level
*Set yourself goals
*Prepare for trading
*Set Exit Rules

Trading Strategy

A Forex trading strategy is a technique used by a Forex trader to determine whether to buy or sell a currency pair at any given time. Forex trading strategies can be based on

• Technical Analysis
• Chart Analysis
• Fundamental Analysis
• News-based Events.

The trader’s currency trading strategy is usually made up of trading signals that trigger buy or sell decisions.

Emotional Balancing

All successful traders have come to realize, it is of utmost importance to have a psychological edge in trading and the ability to control your emotions and stay focused.

Market Fundamentals:

As the largest financial marketplace, forex is affected by an incredibly diverse amount of factors. These market fundamentals are the key pieces to determining when a currency is going to rise in value and when it’s going to fall. Trading on the fundamentals – also referred to as trading the news, is the study of news events and economic statistics to determine trading opportunities. These traders pay close attention to changes in economic indicators such as interest rates, employment rates, and inflation. By assessing the relative trend of these data points, a trader is analyzing the relative health of the country’s economy and whether to trade the future movement of their currency.

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Trading Psychology and Methodology

1. Currency Pair Analysis: Perform a world class analysis to determine which currency pairs have the greatest profit potential.
2. Trade Management: Trade management techniques to take the most of each trade when the market moves on their favor.
3. Study the Market: Entry system adapts to the current market conditions, follow the market instead of guessing.
4. Risk Management: Risk management techniques to set stop loss and take profit orders at optimal levels. Accept risk and feel comfortable with their trading, they know it’s the only way to get consistent results.
5. Money management techniques to allow the geometric growth of their account and avoid the risk of ruin.

Long-term analysis: Methodology to determine which currency pairs have the greatest profit potential.

Short-term analysis: Entry systems: breakout, retracement and continuation price action entries.

Capital management: Determine the formula that you will use to decide how much capital to risk on each trade.

Trade management: Strategies to manage trades, when to scale in and scale out of trade and more.

Risk management: Optimal levels to set stop loss, take profit levels, trailing stop to help you reduce risk.

Trading psychology: what needs to know to accept risk and feel comfortable about every trading decision made.

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What is Spread In Forex Market?

Forex Spread:

The foreign exchange spread (or bid-ask spread) refers to the difference in the bid and ask prices for a given currency.

The bid price refers to the maximum amount that a foreign exchange trader is willing to pay to buy a certain currency, and the ask price is the minimum price that the currency dealer is willing to accept for the currency.

The Bid-Ask Spread Defined

The forex spread represents two prices: the buying (bid) price for a given currency pair, and the selling (ask) price. Traders pay a certain price to buy the currency and have to sell it for less if they want to sell back it right away.

Example:consider that when you purchase a brand-new car, you pay the market price for it. The minute you drive it off the lot, the car depreciates, and if you wanted to turn around and sell it right back to the dealer, you would have to take less money for it. Depreciation accounts for the difference in the car example, while the dealer’s profit accounts for the difference in a forex trade.

How to Manage and Minimize the Spread

You have two ways of minimizing the cost of these spreads:

1. Trade only during the most favorable trading hours, when many buyers and sellers are in the market.
   As the number of buyers and sellers for a given currency pair increases, competition and demand for the business increases and market makers often narrow their spreads to capture it.
2. Avoid buying or selling thinly traded currencies. Multiple market makers compete for business when you trade popular currencies, such as the GBP/USD pair. If you trade a thinly traded currency pair, there may be only a few market makers to accept the trade. Reflecting the lessened competition; they will maintain a wider spread.
3. Economic/Political risks: Nations that experience tumultuous political climates or unstable economies will typically have their currencies associated with high risk. Such economies usually have fairly high inflation rates and are do not have a disciplined approach to monetary policy. As a result of this, the bid-ask spread will become larger. It is because dealers will perceive the currency as a high-risk investment, and thus will have no choice but to sell the currency at a premium in anticipation of higher investor returns.In addition, bidders will not consider the currency a viable investment and will offer lower and lower price for it. Thus, the bid-ask spread will widen and, as discussed above, trade volumes will decrease.

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Trading is an art of making handsome amount.

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Money Management in Forex

Money Management in forex is one of the important factor for consistent profit. Due to its volatility, the Forex market is inherently risky. Money management in Forex is therefore a non-negotiable success factor for both beginners and experienced traders alike. Successful traders in the long run about the single most important factor in trading, and the majority of them will tell it’s a strict way of managing your money and risk. Even the best strategy in the world won’t be of much help if you don’t take care about your risk per trade, reward-to-risk ratios, don’t use stop-loss orders or trade too aggressively. Money Management in Forex

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RISK PER TRADE

Risk per trade is the amount of your trading account that you’re ready to risk on a single trade. It’s a key aspect of prudent money management that prevents you from blowing your account. Many money management techniques state that the upper limit of your risk per trade should be 2% of your trading account, or even less if you’re a beginner in the markets.

NEVER GO WITHOUT SL

A stop-loss order is the only guarantee that you won’t lose a substantial amount of money on a single trade. Although certain market conditions can lead to your stop-loss order not being executed at the set price, most of the time they work just well to prevent losing your entire account on a few trades.

REWARD TO RISK RATIO

Placing inappropriate take-profit levels can be as damaging to your trading results as placing inappropriate stop levels, as you won’t be able to maximize the profit potential of your trade setup.Your take-profit level also determines the reward-to-risk ratio of your trade, which simply represents the amount of your risk relative to the potential profit of the trade. While R/R ratios of 1:1 mean that you’re risking the same amount as your potential gain, trades with R/R ratios of 2:1 or 3:1 have double or triple the amount of potential gain relative to the risk.

BETTER LEVERAGE

Leverage offers the opportunity to magnify profits made from the risk capital you have available, but it also increases the potential for risk. It’s a useful tool, but it is very important to understand the size of your overall exposure. Your broker may give you some leverage on your account to enable you to trade for bigger profits. However, you need to be careful when using this facility.

CONTROL YOUR MINDSET

If you do your analysis right, have confidence in your entry and exit levels and let the market determine if you were right or wrong.Having a strict and written trading plan that contains not only your trading strategy, but also the way you manage money and risk, can help you to avoid emotional trading.

AVOID AGGRESSIVE TRADING

Trading too aggressively is perhaps the biggest mistake new traders make. If a small sequence of losses would be enough to eradicate most of your risk capital, it suggests that each trade has too much risk. A good way to aim for the correct level of risk is to adjust your position size to reflect the volatility of the pair you are trading. But remember that a more volatile currency demands a smaller position compared to a less volatile pair.

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