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Short Term vs. Long Term Trading

Discussion in 'Forex Articles' started by PFXGlobal, Feb 4, 2008.

  1. PFXGlobal

    PFXGlobal Private

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    What you will learn:

    - Short term trading has higher transaction costs than long term trading

    - Long term traders have more time to make decisions

    - Portfolio management is easier for long term traders

    - Companies advocating short term trading may have ulterior motives

    At PFX, we are known for advocating longer-term trading strategies over shorter-term trading. In this section we will explain why we feel that way and help you understand some of the advantages of long-term trading over short-term trading.

    To be clear, while we feel that short-term trading is inferior to longer-term trading, we understand that many traders enjoy operating in the very short term and there are even a few who are successful at it. It is also appropriate to add that short-term trading can be fun. Some of us here at PFX allocate a small part of our portfolio to short-term trading because it is enjoyable. However, the questions we want to answer in this section are not whether short-term trading is more fun than long-term investing but whether long-term trading has the potential to be more profitable and provide more risk control and whether all of this is more achievable for new investors.

    Short-term trading: We would classify a short-term trade as anything with a holding period of less than a week. Short-term trading includes day-traders and scalpers who may hold a position for a few seconds or minutes as well as short-term swing traders, who may hold a position for a few days. A great way to tell the difference between short term and long term traders is the chart period they favor. Longer term traders tend to use daily-bar or candle charts. Short term traders may use charts as short as 5 minutes.

    Long-term trading: A long-term trader falls outside the short-term horizon and is not only identified by the period the trade lasts but also how the position is managed throughout the holding period. Being a long-term trader does not mean you are a static trader who does not actively manage a position. A long-term trader may actively manage a position for several weeks to several months. This is not the same thing as “buy-and-hold.”

    We think that the disadvantages of short-term trading over long-term trading are ignored for two controversial reasons, and our experience has shown them to be important influencers when traders are entering the market and trying to decide what kind of investor they will be.

    Watch the video and get the rest of the article here:
    Profiting with Forex (PFX) - Watch Forex Professionals Currency Trade
     
  2. digforpips

    digforpips Private

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    I completely agree. I think you have to be truly gifted to be a successful short term trader over years. I prefer to swing trade and position trade. As a day trader you have to know the exact price point and the exact moment that price will move. It requires pinpoint accuracy that I find is difficult to attain on a regular basis.
     
  3. DaveO

    DaveO Private, 1st Class

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    I agree that daytrading is extremely difficult BUT for newbs it is without doubt the best training ground before moving to swing and/or position trading after a few years.

    The other significant difference is the margin required if one is talking about making a living from trading. In theory it is possible to daytrade with a comparitively small account but I hasten to add that only a tiny % of daytraders make money on a consistant basis. In fact the same applies to all timeframe traders. The success rate for consistant meaningful earnings is small, very small.

    Swing trading requires much wider stop strategies than daytrading so to be trading a basket of instruments and be in open positions on lets say up to 10 instruments you need lots of capital. Expectations are often totally unrealistic for this.

    Sensible money management rules would denote that no one trade has risk of more than 2% maximum of account size and risk on all open positions not to exceed 5% of account size.

    Doing the math on this basis you need a $300,000 account to make $75K per annum gross at an ROC of 25%.

    25% return for any intermediate level trader would be considered very satisfactory indeed.

    Anyone who says the money management rule is overly cautious is inviting you to fail because consistant success in trading can only be accomplished by operating within a strict comfort zone and one that has tight risk control rules.

    My advice is to first prove your edge with daytrading a small account. lets say $10K. If you cannot find your edge and learn the required disciplines trading small lot size what is the point of losing $100K or more for the same exercise. If you blow up on $10K then you have to step back and reflect a little. You have to decide whether you are cut out for this endeavour and whether you wish to revise your trade plan to work the next $10K investment.

    Unfortunately there is no substitute for experience. You have to go through the mill to become an elite trader. There is no short cut, no magic, no holy grail (except within yourself). Any newb is up against a large industry of carnival barkers offering easy money for no real work if you adopt their system. Be smart and sidestep the b/s. Read the right books. DO THE WORK. Prove an edge using a small account and then progress a small step at a time.

    Sooo, I do not altogether agree with PFXGlobal if you are targeting novice traders but I admit to not delving further into the link you provide. I see many many novice traders posting on this platform so my input is mindful of their best interests.

    David.
     
  4. tradeinstant

    tradeinstant Recruit

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    Trading longer time frames is actually much easier than scalping and much more profitable. When you scalp you need to work with broker’s spread and as everybody know spread can work against you most of the time. When you trade longer term timeframes you don’t need to worry about the spread. Scalping for a few pips is just a fools a game
     
  5. sam111

    sam111 Private, 1st Class

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    If you are holding currency for long then you are not a trader rather an investors. A trader always goes for short term trading not for long term trading.
     
  6. sincronic

    sincronic Recruit

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    How come?
    In forex a trader is just who trade currencies. It has nothing to do with long or short term. Actually those term are not really define in forex. Anyway, you can use the same analysis in a M5 or in a D1. So the only difference will be just in what kind of system and trading style you are using.
     
  7. Ken Long

    Ken Long Sergeant

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    Not true. Plenty of people trade long term. Its just a matter of how you look at a position. Investors tend to be more fundamentaly inclined, and they tend to buy things they want to own and be a part of. Traders tend to be more technical and there generaly in it for the profit. There really are no investors in the Forex markets, theres nothing to own. Even long term currency traders are not investors. Investors tend to buy companys because they believe in the product, the management, the value. Theres nothing to buy in the Forex market, we're all just trading the exchange rates...
     
  8. Ken Long

    Ken Long Sergeant

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    Definately, not true. Its all just a time frame on a chart. Trading long term is not more profitable than short term, simple math would tell you that. Its whether or not you can do the work. Day trading is much more work, but also potentialy much more profitable. The shorter term and more often you trade the potentialy more money you can make. Look at the volitility ranges on different time frames and make your choices.

    The spread is not the problem, all you need is one ar two pairs with tight spreads to day trade well. The problem is fatigue and burnout. You have to pace yourself and know when to quit.

    All told its nice to have some long and short term positions and to day trade when possible. There all different and all have ther own benefits.
     
  9. sam111

    sam111 Private, 1st Class

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    Short term trading: Many traders enjoy operating in the very short term, and there are even a few who are successful at it. It is also appropriate to add that short-term trading can be fun.

    Long term trading: However, long-term trading has the potential to be more profitable and provide more risk control. Plus, it is typically easier for new forex traders to learn and get started with longer-term trading strategies.
     

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