Short and Long Forex Trading: A Detailed Guide

Short and Long Forex Trading: A Detailed Guide

There are still debates about what is more preferable, short or long positions in the forex market. Investors have not come to a definite decision, let’s try to figure out what is more profitable.

Increase of profit with decrease of risks

Each strategy has its pros and cons. Quick trades on currency pairs yield greater compounding effect, while long positions attract higher margin. A trader can make one or another move to one of the options, but, to a greater extent, it depends on the type of trader and to what extent the player is ready for the risk.

Short Term Forex Trading:

Short and Long Forex Trading: A Detailed Guide

If a position is open from a minute to a week, these are called short trades. For the broker, of course, this is more profitable, so they try in all ways to induce the client exactly to short transactions, it brings a generous commission to the companies which charge a commission for opening and closing of transactions. It cannot be said that it is not profitable for traders as well, such trading allows the use of a larger number of instruments.

Pluses and minuses of short-term trading on Forex:

We propose to break down the advantages and disadvantages of such trading.

Advantages :

1. fast profits.

Yes, indeed, if a trade can close in a few minutes, then the profit will be faster for the trader. Such advantages are mainly used by scalpers and intraday traders.

2. Additional earning potential

It is allowed to combine two strategies, but during short positions, the trader can benefit during volatile market sessions during rapid growth or decline. One can benefit from trending markets by working on intraday trades. Thus, there is a probability of doubling the profit.

3. minimizing the risk.

Indeed, there is less risk in trading, because you can quickly release capital in case of sharp changes in the market direction and enter the transaction again, in accordance with the mood of the market. Potential losses are easier to reduce if the market has not moved far from the position opening level. There appears a possibility of market analysis in connection with news that can influence the currency. This way is used by most experienced traders. But, it is necessary to study news portals continuously not to miss anything.

Disadvantages of short-term trading in Forex:

1. The high cost of trading.

The main disadvantage of short-term trading is the high cost of commissions and spreads, a large number of such transactions will significantly reduce the trader’s profit, sometimes the fees exceed the profit from the transaction, especially unpleasant to pay the commission, if the transaction is closed in a loss.

2. Significant losses

With high volatility, the client’s losses are at a high level. The more amount of money a client enters into a transaction, the higher the risk of bearing heavy losses, though profitability may be symmetrically high. High financial leverage also influences the risk, which allows to make fast profit as well as to lose much.

3. High stress levels.

The market cannot always be predicted, that’s why the stress level of beginners is off the scale. It’s also connected with the fact that players with big volumes and with high quality information have to confront. But here you need to manage and distribute risks, it will lower the stress level.

4. Increased attention and focus

Determining the entry and exit points of the transaction requires extreme concentration and quick reaction, since time of operation of the transaction is usually quite small. It is required to literally merge with the monitor in order not to miss a single opportunity.

Types of traders in short-term trading:

There are only two patterns of behavior on short forex trades. The first is scalping and the second is day trading.

Scalping:

Short and Long Forex Trading: A Detailed Guide

Scalpers enter the market at the busiest times. They catch every pip so they can add them up and make a nice profit. They catch the slightest fluctuations in the market, basically their deals are closed in a matter of minutes.

Day trading:

The main task of the day trader is not to let the trade be carried over to the next day, so as not to pay swaps. Even if the trade is operating in deficit, it will be inevitably closed. Likewise, intraday traders never open night positions.

Timeframes in short-term trading:

Among the most popular timeframes, are: M30, M15, M5 and M1. If the timeframe is set high, the trader will have less need to work with daily data. The technical analysis will depend on each candle. If you pay attention to small timeframes, you can find more options for capturing than in the 4-hour or daily timeframes.

The markets most suitable for short-term trading:

Stock markets – both long and short positions are allowed.

Cryptocurrency markets are open – one of the big advantages is round-the-clock operation and high volatility.

Commodities and commodities – no different in terms of trading from previous markets.

Short-term Forex trading strategies:

We’ve listed a few basic types of strategies for short positions.

Identifying Support and Resistance Points:

This is the most basic approach, is as follows, support points are determined, the trader opens a trade only when the market breaks through this level, tending downward. It is the same with the resistance level, only the deal is opened for a long position.

With this strategy, it is a good idea to use a stop loss beyond the boundaries of resistance and support levels.

Trend-Hunting:

Also a short-term strategy, the trend within the day is determined and trades are opened in its direction until the trend changes. You can try to open a position in the direction of a recent market breakout, when there is a break in the daily trend. It is not difficult enough, you should wait for the moment when the pair rebounds three times from the trend line and open a position in the direction of the trend line on the fourth one. In the technical analysis, the trend is the main assistant.

Long-term trading on Forex:

This type of trading implies a much higher income and trades lasting up to several months. One such deal exceeds hundreds of short positions in terms of profitability.

Advantages and disadvantages of long trades in Forex:

The following are the advantages of long forex trades:

Conservation of time:

In fact, long term trading does not require the trader’s constant attention, it is enough to open a seg and leave it for a few months, this combines perfectly with other work, you can have more time for family and rest, since there is no need to follow the day’s trends online.

Less stress:

There is no need to be afraid of missing an entry or exit point, you just have to do your research once to choose the direction of the trade.

Opportunity for greater profits:

Using forward trading tactics, you can simply watch the big players and stick to their strategy as a guarantor of much greater profits than with scalping and day trading. This allows you to earn extra income while working in a different direction.

Better cost to profit ratio:

The trader’s commission costs become noticeably lower, since you don’t have to pay many times to open trades, as well as swaps become much cheaper, and in some cases even have a positive value.

Disadvantages of Long Trades in Forex:

Not for the impatient:

It’s exhausting for most people to sit and wait for their profits for months, most players just don’t have the patience. The desire for instant profits tends to dominate.

Knowledge is needed:

This type of trading is fully suitable for traders with a large baggage of knowledge and experience, as well as it is impossible to benefit without an understanding of technical and fundamental analysis. After all, short-term trading is like roulette, traders rely on their intuition, there is no need to analyze the market and study trends. Experience and knowledge of interest rates, financial indicators, news analysis – all this is just necessary to build a long-term strategy.

Availability of a large sum of money on the account:

Trading for the long term implies a large investment, when a trade is open, you cannot use these funds to trade other assets further. The system of risk minimization implies having a much larger amount of money than you currently have on a trade.

Conclusion: Forex Trading

Short and Long Forex Trading: A Detailed Guide

Having made the comparison, we have come to the conclusion that both methods of trading have their place. The choice will always depend on the experience of the person and the type of personality. The presence of a large amount of money in the account is also of great importance. That is, a trader with extensive experience and availability of large capital will prefer trading on long positions, and vice versa, a beginner with no experience and minimal investment will want to see results immediately and his choice will be short-term investments.

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