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Forex Trading Using the Long-Term Charts

June 11, 2007 (Last updated on November 29, 2009)

When it comes to Forex trading it is usually associated intraday trading or more rarely — intraweek trading. This is caused mainly by the high volatility of major currency pairs which makes them potentially profitable in the small amounts of time, while making it too risky in longer terms. Second reason for the short-term Forex trading being more popular is a high leverage margin accounts — 1:100 or even higher – this increases single position risk and profit making it deadly risky in a long term.

Long-term trading in Forex can be defined as deliberate maintaining of open positions for more than a week. Under one week term is still considered a short-term for Forex – position lives through just a few different news releases and is not caused by long-term forecasting. Whereas position which is kept open for several weeks usually lives through some news releases on the same topic (but with different) and thus requires some long-term forecasting and technical analysis on daily/weekly charts.

Success in Forex trading (like in any other financial trading) depends greatly on trader’s psychology and emotions. Some traders are comfortable with fast and exciting (if trading can be exciting) trading style when positions are open and closed within minutes. Others prefer keeping their positions open for several hours – watch them rise or fall and have some time to react to the market moves. Trying to trade in the time periods that don’t suit your character type won’t bring you any profit. To trade successfully one must be emotionally integral and calm. If trader is uncomfortable with intraday or daily trading he needs to try something different. Long-term Forex trading is good for:

  1. Traders that don’t have time to sit in front of their terminal for the whole day.
  2. Traders that like to spend a lot of time in fundamental or technical analysis.
  3. Those that can spend more than one day when it comes to the actual trading decision.

If you feel that you fall into one of the above categories of Forex traders I suggest you at least to try long-term trading. Perhaps, it will dramatically improve your trading results.
The best charts for the long-term trading in Forex market are daily and weekly charts (and other charts of bigger periods). Personally I prefer using a weekly chart for EUR/USD pair, since technical analysis patterns can be clearly seen on such chart (unlike short-term charts that often behave against all possible predictions). Determining a trend or breakout is not hard on the long-term charts usually. But even if a trader fails to recognize a pattern and opens a wrong position he will have many days to close it, and often he will have a chance to close even a bad position with a small profit. Using fundamental analysis in long-term Forex trading isn’t hard too. Trader just needs to analyze general trends in central banks’ interest rates decisions and act according to possible carry trade trends. Long-term trader also shouldn’t forget about general global trends – like oil prices, commodities, political situation and others. Maintaining stop-losses is very important and especially if trader uses high leverage – stop-loss shouldn’t be to far away from the open price. Trailing stop is good, but it should be manual, not automatic. Stop loss moving should be based on the Forex market behavior. Position target should be set according to the trader’s plan – when analyzing the long-term chart it is really not difficult to determine the most probable targets for the currency pair to land.

So, if you think that short-term Forex trading doesn’t posses a good potential for you as a Forex trader – try long-term trading. In Forex it is still good as it is with stocks. Just don’t forget that you are trading with leverage, that main trends are caused by central banks’ interest rates decisions and that stop-loss/target-profit should be placed according to charts technical analysis.

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