Some forex traders just trade for a few minutes at a time. Others, on the other hand, can keep them for days, weeks, months, or even years.
So, who is correct? And how should you go about it?
Both strategies can be rewarding, according to the answer. The most essential thing is to figure out which technique is best for you, as many traders use both.
What is short-term trading?
Short-term trading, in general, refers to trades that last seven days or less.
Traders who hold positions for only a few minutes (scalpers), traders who keep positions for hours or a whole day (day traders), and swing traders who hold positions for a few days are all considered short-term traders.
Pros of short-term trading
Being a short-term forex trader has a number of advantages.
- When currency rates increase, you can trade on a large number of scenarios, allowing you to profit from every swing.
- You don’t have to keep your money in a bank account for a long time. Your margin capital is only locked for a limited time, making it easier to withdraw it at any time.
- Long-term trading puts your money in positions for months at a time.
- The great majority of forex trading signals are only useful for trading in the short term. Both technical and fundamental signals typically give trading opportunities that last only a few hours.
- The number of signals and events that have a long-term impact on currency rates is limited.
- Day traders can generate little profits quickly because they do not have to wait for their money for long periods of time.
- Closing profits (or losses) daily relaxes you psychologically because you don’t have to worry about what happens in the market after you leave your workstation.
Cons of short-term trading
- Short-term trading requires a significant amount of your time. It also necessitates active trading on short timescales such as 15 minutes, five minutes, or even one minute, which can be extremely stressful, hard, and difficult.
- It required a razor-sharp focus.
- Short-term trading signals and indicators can sometimes force traders to make poor decisions, especially if they are pressed for time or under stress.
Long-term trading is making trades that stay open for months, and often years. These are buy-and-hold trades rather than quick, buy-and-sell trades.
Pros of long-term trading
- You might save money on broker costs. Long-term traders make fewer trades but hope to profit more pips from each position.
- Short-term volatility resistance. Long-term forex traders are unaffected by daily market volatility, so they don’t have to worry about things like intraday increases.
- When you trade for the long term, you have more time to recover your position if something important happen.
- Long-term trading can be a lot less complicated.
- You must foresee the general trend and exit points to trade profitably over long periods of time. That’s rarely a tough thing to do on long-term charts.
- Because you trade frequently, you won’t have to make many choices, whereas short-term trading requires the development of complicated strategies.
Cons of long-term trading
I’ve been waiting for profits for a long time. You may not notice a return for weeks or months.
You must be politically savvy and have a basic understanding of economics.
Understanding – and keeping an eye on – how global events affect currencies is critical for long-term traders.
Which Trading style is right for you?
Two factors will assist you choose your trading style:
How much time you can invest to trading
Your personality type
Short-term trading takes at least two hours daily. The first hour or two after the markets start is when day traders often take advantage of major price changes.
You will also need to prepare for the daily open and review your trades daily and weekly.
As a short-term trader, your weekly time commitment may range from 15 to 40 hours.
However, while opening a long-term position, the research can be done at any moment. As a result, it is more acceptable to traders who treat trading as a hobby rather than a profession.
Short-term trading requires emotional control, disease resistance, and attention.
It’s critical to enter and exit trades based on technical indicators. Overly emotional trading will usually result in bad performance.
Long-term trading requires patience and discipline. Long-term traders must also be aware of current political and economic happenings.