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Is long-term trading more profitable than short-term trading? This is a topic for debate, and there is no clear answer. But let us see the discussion – long trades vs. short.
Long position and short position in forex
By definition, the long forex position is when a trader buys a currency at one price and aims to sell it later at a higher price. A short position in forex is when a trader sells currency at one price and aims to buy it later at a lower price. Thus, long position – buy currency pair, and short – position sells.
Short term forex trading or long term forex trading
Short-term forex trading or long-term forex trading? In Forex, both short-term and long-term trading have advantages and disadvantages. Usually, Forex’s long-term trading has a better winning ratio and profitability, but short-term trading has a more significant compounding effect.
Have you been wondering about short-term Forex trading or long-term Forex trading? Regarding Forex, it is a good idea to concentrate on long-term growth. It is important to realize that one will not become wealthy in a short amount of time with the Forex market.
Some promote trading strategies that are long-term as being preferred to strategies for trading that are short-term. Thus, there will be an explanation regarding the benefits of trading that is long term compared to trading that is short term.
The truth is that trading over the long term is more beneficial than trading over the short term. This is particularly true for those who are new to the realm of Forex trading. On the other hand, several traders especially like trading over a short period. Some have even prospered this way quite well. Further, trading for the short term can seem pleasurable. That is why some people who believe in the stronger power of trading for the long term also add to their portfolio some trading for the short term.
Yet, the results show that trading for the long term can generally yield more money. Also, it allows for more control over risks. It is also easier for new investors to learn trading over the long term instead of the short term.
Short Term Trading
Short-term trading represents a trading style in stock, forex, futures, or any financial derivatives markets where the trading time duration between entry and exit position is within a range of few seconds to few weeks. Short-term trading during the day session is called day trading or intraday trading.
In that case, is swing trading short or long-term trading?
What is Swing Trading?
Swing trading is short to medium-term trading where the trading time duration between entry and exit position is within a few days to few weeks. Thus, swing trading duration is between short-term and long-term duration.
Trading for the short term refers to items that are held for a time of fewer than seven days. Thus, trading for the short term considers those who are scalpers and those who are day traders. They may hold an item for even only a few minutes. In the short term, other traders are categorized as swing traders because they may hold an item for a few days. In the long term, traders apply candle charts or daily bar charts, whereas traders in the short term tend to apply charts that are even as short as only five minutes.
Basically, it is upon the trader to trade as per this personality and his own trading style. The reason is there are many ups and downs in trading, and if you do not keep yourself updated about the latest, you may be in trouble. There are different benefits for short-term trading and long-term trading. Those willing to get maximum benefit can focus on a specific trade and think of long-term Forex trading. In long-term forex trading, you will be able to plan things systematically as you will have sufficient time.
For those who are not aware of what short-term trading is, well, understanding it now. It refers to trading strategies, and the time duration in it is for a few days or weeks, depending on the stock market. Thus, one needs to be more careful and study the trading market’s overall condition so that you do not go wrong anywhere. You can earn easily, and this is only possible if you are good at trading.
If you are willing to go for short-term trading, you can also hire a good company that deals in trading. However, they will have their commission on the trading that they will do on your behalf. You will have to spend more time in front of your computer as you will have to wait for the stock to go up in the short term. You will have to until you are sure you will earn profit from it.
How to identify stocks for short-term trading?
Traders can identify stocks for short-term trading based on the chart time frame and price levels. Usually, traders in trading plans define chart time frames, entry price level, and exit price level. If the price difference between wished entry price and exit price is less than 1 Daily average true range and the observed chart time frame is lower than the daily time frame (M15, M30, H1, H4), then this type of stock is perfect for short term trading.
How can we do this in practice?
How to do short-term stock trading?
First, traders need to create a trading plan and define trading triggers based on technical and fundamental analysis. Then, based on price levels (previous support and resistance, Fib. levels) and chart indicators such as MACD, RSI, moving average, VIX, etc., traders define entry and exit positions. During that time trader analyzes M15, M30, H1, H4 chart time frames – analyze the market quickly. Then, after economic indicator analysis for a particular stock, the trader decides to enter into a short time frame position where trading time duration between entry and exit position is within a range of few seconds to few weeks.
To use the MACD indicator in the right way use MACD MT4 2 lines indicator.
Is short-term trading worth it?
Short-term trading can be worth it and profitable but at the same time very risky. However, if traders do not overtrade, carefully calculate trading commission during short-term trading and plan each trade, this trading style can be profitable. For example, if trader trades as a day trader creating short-term forex trading positions and his risk and reward is 20 pips, then his trading strategy needs to be more than 55% accurate because the trader’s commission can be 5%.
What is long-term trading?
Long-term trading represents a trading style in stock, forex, futures, or any financial derivatives markets. The trading time duration between entry and exit position ranges from few weeks to few months, even years. In simple words, long-term trading or position trading refers to trades that can be opened on for days, weeks, months, or years.
It is different from short-term trading as you will need to wait for at least weeks to months to profit from it. In addition, an investor needs not to care about the update of trading daily as this investor’s focus will be for the long term. Thus, this sort of trading is considered less time-consuming, and those who do not have much time to spend can go for it.
Whether you are thinking of short-term or long-term trade, there are chances of profit or loss both. Thus, it is better that you do the trading sensibly and with patience.
Traders in the long term are classified by the length of time that the trade endures. Moreover, they are defined by how the position is handled during the time of the holding session. This does not indicate that such traders are static. They do engage in managing their positions. They may maintain a holding session for a duration of several weeks or even for several months.
It is needful to be cautious concerning misguided information. However, when something seems to be too good to be realistic, the bottom line is that it usually is not true.
Trading in the short term does have some disadvantages. But many people ignore them. There are two reasons why this is so.
Short Term Vs. Long Term Forex Trading
Short-term and long-term trading can be profitable, and success is not related to the type of trading but rather by personality, trading strategy, and market environment. For example, if the market is in the range and the long-term trader can not gain big because of the market environment. On the other hand, in strong trading markets, long-term traders can create bigger profits.
There are lots of people who are interested in doing trading. So, those who are interested in trading need to understand the way it is done. For this, you can easily read articles and books so that you gain knowledge about trading. A lot of technical as well as fundamental analysis is involved in trading. So, those interested in trading need to understand it to not lead to a big disaster properly.
Is long-term forex trading better?
Long-term Forex trading can be better during strong trends. However, long-term traders can keep their position for several months and be break-even during the range market. Traders who are nimble in trading and have excellent developed short-term trading strategies can be more profitable than long-term traders. On the other hand, short-term traders have a bigger commission loss and can lose money because of overtrading.
Classification Of Traders/Trading
There are many ways in which you can differentiate traders. The most major difference is between the short-term traders and the long-term traders. Thus, it is essential to understand the difference between Short Term Vs. Long Term Forex Trading. If you are into trading for many years, you will learn about the market and be more confident in trading.
1. Programs to become wealthy quickly and business opportunities
There are so many system producers, advisors, and even seminar companies overtaking the world of financial retail. What sells better is a system in the short term that produces high returns. That is what people want to hear. The companies realize this to be true, which is why they promote an abundance of trades, tremendously large profits, and loads of excitement. They do this even though this may yield many commissions and spreads many worries and quick losses. This process functions well for them because they contact those who want money quickly, who become loyal fans of their advice and systems.
2. Dealers
This reason is plain to understand. When people make many trades, this increases the dealers’ money from the traders who trade in the short term. This is true even with small accounts. The dealers do still make money from those small accounts. That is why dealers provide much free education—to snatch more of the money of those who trade in the short term.
It is worth being aware of the distinctions between trading in the long term and trading in the short term.
The matter of the spread
In the short term, traders are plummeted with facing a challenge right away because they engage in trading more frequently than traders in the long term. Thus, in the short term, these traders must overcome the issue of the spread more frequently.
To receive a profit of 1,000 pip during trading euros and US dollars, a trader can conduct one trade in the long term, which escalates to 1,002 pips (based on the spread for the currency being 2 pips). Therefore, he must be able to acquire 2 pips to gain over the spread.
On the other hand, when a person trades in the short term regarding 50 trades, he will need to accrue 1,110 pips to overcome the spread of 2 pips for euros and US dollars. This is because he must overcome the span of the spread concerning every trade.
That equates to 100 pips. This means that a trader in the short term must profit ten percent more than someone who trades in the long term.
Then it is logical to consider that it is not worth it to make investing in the Forex market 10 percent more difficult than necessary. The numbers in the scene mentioned above can be changed to accommodate any situation. Yet, the fact remains that more transactions add up to more expenses. This is great for the dealer. But this is not contributing to your own prosperity.
Trade, in the long term, does provide many good investing opportunities.
Are you prepare to be nimble?
If you want to trade short time frames – you need to be nimble, fast.
Many traders tend to be overcome by focusing on short-term items and miss seeing what is occurring in other market areas. In addition, there is a lot of moving in the market. Thus, entries and exits are formulated abruptly. The energy level needed to concentrate on only one or two trades in the short term can prevent the person from realizing more profitable opportunities in the long term.
We can classify the forex traders into 2 groups: long-term and short-term traders. It is necessary to be aware of the short term vs. long term while choosing the appropriate trading style.
We will begin by evaluating short-term trading positive aspects. The quickly passed action happens to be the initial and the most obvious draw to the short-term techniques. Scalping the FX market or day trading can prove to be a notably exciting profession, provided you can generate revenues. Making fast cash is not a dream anymore; it turns into truth once you master scalping art. You don’t have much exposure to the marketplace, which is one benefit of short-term trading. On most occasions, positions will be open once you sit before the monitor, and they will close once you shut down your computer. A lot of traders value having zero risks while walking away from the PC.
Now we will look at some of the negatives. The most notable is the short-term trading highly-stressed environment. On most occasions, novice traders believe that they would be able to jump in headfirst. However, most of them will not understand how to manage stress related to day trading. It will be possible to conquer the art of scalping by spending a notable amount of time in front of the monitor or observing a scalper in action. Another downside of short-term techniques happens to be intra-day instability. Apart from affecting the entry timing, it will stop loss locations, too, even though you might have the correct direction, the incorrect stop, and play the spoilsport. Strategies mean everything when it comes to most of the short-term techniques!
On the other hand, long-term FX trading has an increased volume of buying and holds type methods. Position traders try to take advantage of the general direction of the forex market instead of short-term trading. Long-term merchants are likewise referred to as position traders who might place just a couple of trades every year. They might see their position only once every week or even less. It is possible to hold a position trader for several months, weeks, or perhaps a year or even longer.
The period of time required for trading is one more benefit of FX market position trading. There is no need for you to position yourself in front of your PC every single day. It will not matter even though you have full-time work. It will take only several minutes every week so long as the basic stuff does not change.
There are several downsides to long-term trading, and the first one is the absence of action. It will not be an alternative for you to wait for months for any specific trade to establish if you happen to be an active investor. Apart from that, trades, once included, will always be in the marketplace. That position can be affected by global events plus other unexpected situations, and consequently, it is compulsory to have correct stops losses. You are further open up to a swap while doing position trading in the FX market. While purchasing any currency pair, you’re going to sell the 2nd currency in that pair. You have to pay interest, which is also called a swap if the first country’s currency does not have a higher interest rate.
In general, every type of trading comes with its individual benefits and drawbacks. We have listed only a few in this post. It is imperative to assess your lifestyle and yourself as an individual while choosing your trading type. For example, try to figure out whether you fancy the excitement involved in active trading or whether you like to regularly be positioned before the monitor. Questions such as these are quite natural in ascertaining a trading type. You will observe the trading type matching your personality and lifestyle the best while evaluating yourself along with your schedule; if you find yourself to be more of a short-term FX merchant who likes to know how to day trade the FX market profitably, don’t hesitate to learn further through our Forex course and members’ forum.
He is an expert in financial niche, long-term trading, and weekly technical levels.
The primary field of Igor's research is the application of machine learning in algorithmic trading.
Education: Computer Engineering and Ph.D. in machine learning.
Igor regularly publishes trading-related videos on the Fxigor Youtube channel.
To contact Igor write on:
igor@forex.in.rs
