In the figure above, a variant of the same strategy is proposed, only in a long-term format. So, this strategy option is long-term for the reason that the time spent by the trader in the transaction will be much longer than one day. We proceed to consider the main parameters:
- Temporary timeframe. In this case, I used the D1 timeframe, which corresponds to one day. And this timeframe is perhaps the least for long-term strategies. Most often, long-term strategies are formed on weekly and monthly charts.
- The time spent in the transaction. If in short-term trading the time spent in a transaction is not so important, then for long-term transactions, time is one of the most important factors. The easiest way to approximately determine how much you will expect a profit is to calculate it through the average daily volatility of a trading instrument. The main problem is that volatility has to be considered manually since it is not published anywhere. The calculation method is simple: we take the interval per month and summarize the value in points of each daily candle, then we divide this value by 21 (the number of working days in a month). We get the average value of volatility. For example, for this example, the GBPUSD pair is used, the average volatility of which is about 675 points per day. Our expected profit is 4200 points. Divide this value by 675 and get 6.2 days. When calculating the time, we take into account calendar days, and therefore our transaction will be active for at least a week. And from experience I’ll say that all two. I usually add as much to the calculated parameter and get an approximate actual value. Total, 12 days is the approximate time we spent in the transaction.
- Commissions. We have already talked about the types of accounts. In this case, we made a transaction on an ECN type account, which implies a raw spread and a commission. So, let us make a deal in the same volume of 1 lot. Currency pair GBPUSD. The commission will be 10 USD + spread 4 points or 4 USD. Since our transaction will stand for more than a day, another commission is added to us – a swap. In one of the articles already told you what kind of commission it is. In fact, this is the difference in interest rates of countries whose currency is participating in a pair + brokerage markup. The value of the swap value can be found in the specification of the currency pair. In our case, the swap for the purchase is 12 points per day. Our time is about 12 days, multiply by 12 points and get 144 points. And we still forgot the day of the triple swap, which is debited from Wednesday to Thursday. Add 36 more here, totaling 180 points. With our single lot, this is -180 USD. Subtracting 14 USD commissions + 180 USD swap from the final profit, this will be our result of a long-term transaction. If everything happens, as we intended, we will get a profit of 4200 USD from which we subtract 194 USD of commissions. For such a profit, this is not so scary.
- Profit in size. There is no point in telling here for a long time, we already found out everything in the last paragraph. Our profit will be approximately 4000 USD for a possible 12 days. For the sake of such a profit, it’s worth the wait. However, we must remember that in case of failure, our losses will be multiple.
- Amount of deals. The number of transactions that we open, as in the case of intraday trading, will directly depend on the type of trading strategy. In this example, I also used a trend change strategy. Let us turn to statistics, which says that the global trend changes extremely rarely, and this happens no more than once a month. This means that we can count on a maximum of 1 deal per month for this strategy. Of course, to wait for the result, in this case, is much longer than with short-term trading, but this type of strategy has a definite plus. If short-term trends are replaced with a probability close to 50%, then changes in global trends are practically not false, as evidenced by eloquent statistics, out of 100 global trends, this strategy captures a profit of 82 shifts. During the trading year you will have a little more than 10 transactions, but what deals! Of these, only 1 or 2 will be unprofitable, while the rest will be profitable. And even if you take the average profit of 3000 points, for the year it will be 30,000 points.
Why are so few traders working and earning in the long term?
This question suggests itself after reading the previous chapter. If long-term trading is so low-risk, why is nobody using it, and everyone is trading in the short-term? To better understand the answer to this question, let’s break it down into several reasons:
- A small trade deposit. Most traders who are just starting their journey in the world of Forex, believe that in order to try their hand at trading, a small deposit is enough. Like, it will turn out in small amounts – it means it will turn out in large amounts, but then. I will not say that this is wrong. Everyone decides for himself, and to go where you do not know with amounts equivalent to the cost of the apartment is also not the smartest idea. But the problem of a deposit of 100 or 500 USD in the absolute absence of maneuverability. The only option for the owner of such a deposit is “overclocking.” Overclocking is another common Forex myth. In a short time, make sure to turn 100 USD into 1000 USD or 10000 USD. The chances of success in this business are about 1 in 100. You need to constantly make deals using huge leverage for the reason that your deposit is simply not able to provide low-risk or at least mid-risk positions. You always have to walk along the blade of a knife. One losing trade destroys all profitable ones. And the problem here is not that you are a beginner and do not know how to trade, but that there is the concept of a minimum lot, and with a small deposit you simply can not take the volume less than the minimum. With deposits over 1000 USD, you already have where to turn around. Firstly, you can vary the lot, and secondly, you can trade with minimal leverage, which will greatly reduce risks. and with a small deposit, you simply can not take the volume less than the minimum. With deposits over 1000 USD, you already have where to turn around. Firstly, you can vary the lot, and secondly, you can trade with minimal leverage, which will greatly reduce risks. and with a small deposit, you simply can not take the volume less than the minimum. With deposits over 1000 USD, you already have where to turn around. Firstly, you can vary the lot, and secondly, you can trade with minimal leverage, which will greatly reduce risks.
- Use of small leverage. When you are accustomed to trading on small deposits using big leverage, you are also used to the possible profitability that you receive. And this is sometimes from 50 to 100% of the deposit for one transaction. Of course, when taking into account the huge risks, but you do not particularly take them into account. What is with 100 USD to earn 50 USD – nothing special. But try with 10000 USD to earn 5000 USD. I think that you cannot do this with the same ease as with 100 USD. And the reason here is in completely different numbers. Even with large leverage, you are used to the fact that the amount varies approximately in the range of 10 USD. And here there will already be a range of 1000 USD and this is a huge psychological burden. Therefore, you have to lower the shoulder. And trading with minimum leverage for the sake of 100 USD per month does not make any sense if you can earn this 100 USD in the next day or two.
- Fear of big swaps. Many are afraid of swaps because they simply don’t understand what it is. People believe that intraday trading frees them from this problem. But if you understand the essence of the swap itself and the principles of its formation, you will understand that in most cases the swap is not an adversary, but an ally. After all, a swap has two signs, and it is not always negative. In other words, a swap is a commission that you do not always pay; it can be paid to you. And in this case, a long-term transaction for you turns into a free one, since a positive swap will cover losses associated with the spread and commission over time. You can sit in such a deal for at least a year.
- Lack of patience. This is perhaps the main reason why long-term trading is so unpopular. Traders who are accustomed to the “instant lottery” just do not have the patience to sit and wait for their profit to come. After all, long-term transactions sometimes drag on for months and quarters. Virtually no intraday trader can withstand such a period. The thirst for instant profit always wins. Therefore, we need to learn long-term trading, it is impossible just to take and become a long-term trader.
- Misunderstanding the principles of the financial market. This is a classic option. Everyone believes that the market is being done intraday. Why bother with daily charts if we have good intraday volatility? That is so, only a few understand that intraday movements are just a lottery that has nothing to do with global trade and global trends. In other words, short-term trading is a simple guessing game.
- Intrusive propaganda of short-term trading. Perhaps only brokers and dealers will disagree with this paragraph. And this is understandable, it is beneficial for them that traders make a huge number of transactions. After all, every transaction is a commission. And the more transactions you make, the more commission you will give. It is for this that all kinds of scalping trading strategies are created, various trading robots that make a huge number of transactions. Brokers do not care what your strategy is, the main thing is that it implies a large number of transactions.
Long term position
In one of my articles, I talked about an example of how I define and enter into long-term transactions. More than half a year has passed since that article was written, and we can summarize it. Using the link above you can see the graph of the AUDUSD currency pair, which I recommended for sale with an eye on half a year.
This is what the pair’s chart looks like after half a year. As you can see, your profit took place in 28 weeks. This is a huge period of time. But, a profit of 6500 points was worth it.
Depending on the lot that you entered into the transaction, transfer this to money. A 1 lot contract is 6500 USD. Agree that for half a year this is a pretty acceptable result. And most importantly, this result was achieved without nerves and anxiety. The price just calmly went in your direction. Of course, you can ask, but what about the swap? After all, for more than 200 days of being in a transaction, a lot could have accumulated. If you look at a sell swap for a given pair, then it is almost 0, and therefore, you have practically nothing to lose. The transaction was completed and profitable, and so in 90% of cases with long-term transactions. But in the short term, everything is completely different…
The Forex market is a market for perpetual trading contracts, and therefore, you can hold an open position for at least several months, even years, if only it makes economic sense. In the case of long-term trading, the most important thing is to always know and understand what sign the swap has in your position. In my memory, there were very profitable deals that I had to refuse because of a too high negative swap, which threatened to destroy more than 50% of the expected profit.