When trading online, participants can apply either short-term or long-term trading strategies. Long-term trading is a trading style that requires a trader to hold onto a position for a prolonged period. These prolonged periods might be different – from several weeks to several years. It’s also called position trading.
Fundamental analysis is a key aspect of long-term trading strategies because traders pay most of their attention to future prospects of their assets. When trading long-term, they don’t focus on temporary fluctuations, fundamental data that determine the long-term tendencies are more important for them. That’s why they don’t have a need to follow changes on online or hourly charts, they rather need to study the price movements indicated on weekly or even monthly charts.
Long-term trading might seem very similar to investing. This is because traders who apply such strategies benefit from long-term price fluctuations. That is why they prefer trading on more stable markets, where the impact of volatility on trading products is completely minimized.
Let’s take a look at how different long-term trading strategies work and discover key things that can help you trade long-term successfully.
Products for Long-term Trading
Not all financial products suit long-term trading strategies. Let’s discover the ones that are considered the best in the long run.
Shares are quite popular trading products among position traders. Usually, shares and stocks are considered less volatile than other instruments, for example, cryptocurrencies and some forex pairs. Of course, many events that might cause significant changes in share prices might take place, however, position trading still can rely on fundamental analysis, since many companies are well-established entities that have real values that might be determined from this analysis. Position traders can study the performances of these companies or entire industries and understand what will be their future in the long run. This is everything they need to know to benefit from long-term share trading.
Commodities are products that tend to follow long-term strategies rather than face volatility in short-term periods. Currency pairs, for example, cannot be as stable as commodity products. The prices of commodities can also change significantly during specific periods of geopolitical or local crises. However, even if they become volatile, commodity prices will stabilize in shorter terms. Position traders aren’t in a hurry, so such tendencies completely suit them.
As you may know, stock indices are the assets that consist of stocks of many companies that operate in the same country or continent, or belong to the same industry. Thanks to the fact that these clusters include many companies, the impact of the volatility of certain stocks can be mitigated. This makes index prices even more stable than the values of traditional stocks, which usually attracts position traders.
Traders who follow long-term strategies can benefit from trading breakouts. With them, participants can learn a lot of useful information about when the next big movement in the market will take place. When this movement becomes clear, position traders open a position on the chosen market in the early periods of this trend.
Tools Used in Long-term Trading Strategies
When discussing financial instruments for long-term trading strategies, we mentioned the importance of fundamental analysis. It’s curious to know that tools for technical analysis might be quite useful as well. Here are two best indicators that might help to benefit from the mentioned markets if used correctly.
Moving Average over 50 days
This is a technical indicator that shows a trendline representing the daily plotting of closing stock prices. In this indicator, these values are averaged over the past 50 days. Position traders can use this trendline to determine the strong and weak sides of the chosen stock asset.
Support and Resistance
By using support and resistance levels, position traders can predict the direction of price movements. Knowing this, they will have strong reasons to open or close a position on a chosen financial product. In long-term trading, the resistance level refers to the price threshold that an asset seems historically unable to overcome. Relying on such expectations about future price movements, traders who use long-term strategies can use resistance to close positions.
How do I Benefit from Long-term Trading
This position trading guide wouldn’t be complete if we didn’t provide some valuable recommendations on how one can benefit from long-term trading strategies. Here are our 3 tips that will help you to profit from position trading.
1. Be Realistic
If there’s a prolonged decline, no one can guarantee that your asset will recover. If you see that the product shows poor performance, there’s no reason to hold this position. It’s better to sell the asset until its price doesn’t make one more big fall, causing bigger losses to you.
2. Don’t follow Mainstream Strategies without Serious Grounds
Whatever asset you select, make sure to conduct your own research. If your technical or fundamental analysis shows that this position isn’t worth opening from the long-term perspective, don’t follow this mainstream. Rely on your experience and knowledge.
3. Be Ready to Discover Something new
This is especially relevant for the stock market, where many companies compete. In this market, it’s possible to find good-performing companies that lack popularity. If the fundamental analysis shows great prospects, their assets might be very valuable from the long-term perspective.
We hope that now you understand how to position trading strategies work. We wish you to find your way and make the most in the long run.