Forex trading can be classified into two main types: long term forex trading and short term forex trading. In this blog post, we will define what these terms mean, explain the main differences and similarities between them, and help you decide which one is better for you.
Long term forex trading is a trading approach that involves holding positions for months, years, or even decades. Long term forex traders rely on fundamental analysis, which is the study of the economic, political, and social factors that affect the supply and demand of currencies. Long term forex traders look for long term trends and patterns in the forex market, and try to capture large price movements over time.
Short term forex trading is a trading approach that involves holding positions for minutes, hours, or days. Short term forex traders rely on technical analysis, which is the study of the historical price movements and patterns of currencies using charts and indicators. Short term forex traders look for short term opportunities and signals in the forex market, and try to exploit small price fluctuations over time.
Both long term and short term forex trading have their own advantages and disadvantages, depending on various factors such as your trading style, goals, risk tolerance, time availability, etc. There is no definitive answer to which one is better, as it depends on your personal preference and situation. However, by comparing and contrasting the two trading approaches, you can gain a better understanding of their pros and cons, and make an informed decision on which one suits you best.
Compare Long Term vs Short Term Forex Trading
In this blog post, we will compare and contrast long term vs short term forex trading in terms of:
- Trading style and frequency
- Trading goals and objectives
- Trading risks and rewards
- Trading tools and indicators
- Trading psychology and emotions
We will also provide examples and case studies of successful long term and short term forex traders, discuss the common mistakes and challenges in each trading approach, and give some tips and recommendations on how to choose the best trading approach for yourself.
Trading style and frequency
One of the most obvious differences between long term forex trading and short term forex trading is the trading style and frequency. Long term forex traders tend to trade less frequently, but with larger position sizes and wider stop losses. They are more patient and selective in their trades, and they can afford to wait for the best opportunities to enter the market. They also have to deal with less market noise and volatility, as they focus on the bigger picture and the long term trends.
Short term forex traders tend to trade more frequently, but with smaller position sizes and tighter stop losses. They are more active and aggressive in their trades, and they try to capitalize on every market movement. They also have to deal with more market noise and volatility, as they focus on the smaller time frames and the short term signals.
Trading goals and objectives
Another difference between long term forex trading and short term forex trading is the trading goals and objectives. Long term forex traders aim to achieve consistent and steady returns over a long period of time. They are more interested in the quality of their trades than the quantity of their trades. They also have a longer time horizon for their trades, which means they can tolerate more drawdowns and fluctuations in their account balance.
Short term forex traders aim to achieve quick and high returns over a short period of time. They are more interested in the quantity of their trades than the quality of their trades. They also have a shorter time horizon for their trades, which means they have to be more careful about their risk management and exit strategy.
Trading risks and rewards
A third difference between long term forex trading and short term forex trading is the trading risks and rewards. Long term forex traders face lower risks but also lower rewards per trade. They have a lower risk-reward ratio, which means they risk less money to make less money. However, they can compensate for this by having a higher win rate or a higher number of trades over time.
Short term forex traders face higher risks but also higher rewards per trade. They have a higher risk-reward ratio, which means they risk more money to make more money. However, they have to balance this by having a lower win rate or a lower number of trades over time.
Trading tools and indicators
A fourth difference between long term forex trading and short term forex trading is the trading tools and indicators. Long term forex traders rely more on fundamental analysis, which is the study of the economic, political, and social factors that affect the supply and demand of currencies. They use tools such as economic calendars, news reports, central bank statements, GDP reports, inflation reports, etc., to analyze the macroeconomic conditions and trends of different countries and regions.
Short term forex traders rely more on technical analysis, which is the study of the historical price movements and patterns of currencies using charts and indicators. They use tools such as trend lines, support and resistance levels, moving averages, Fibonacci retracements, oscillators, etc., to analyze the market behavior and sentiment of different currency pairs.
Trading psychology and emotions
A fifth difference between long term forex trading and short term forex trading is the trading psychology and emotions. Long term forex traders have to deal with less stress and pressure in their trading, as they do not have to monitor the market constantly or react to every price change. They also have to be more disciplined and patient in their trading, as they have to stick to their trading plan and wait for their trades to mature.
Short term forex traders have to deal with more stress and pressure in their trading, as they have to monitor the market constantly or react to every price change. They also have to be more flexible and adaptable in their trading, as they have to adjust their trading plan according to the changing market conditions.
Pros and Cons
As we have seen, both long term forex trading and short term forex trading have their own pros and cons, depending on various factors such as your trading style, goals, risk tolerance, time availability, etc. Here is a summary of the pros and cons of each trading approach:
Long term forex trading pros:
- Lower risks per trade
- Lower stress and pressure
- Less market noise and volatility
- More consistent and steady returns
- More time for research and analysis
Long term forex trading cons:
- Lower rewards per trade
- Longer time horizon for trades
- More drawdowns and fluctuations
- More capital required
- Less excitement and thrill
Short term forex trading pros:
- Higher rewards per trade
- Shorter time horizon for trades
- More opportunities and signals
- Less capital required
- More excitement and thrill
Short term forex trading cons:
- Higher risks per trade
- Higher stress and pressure
- More market noise and volatility
- Less consistent and steady returns
- Less time for research and analysis
Tips Choose the Best Trading
Finally, here are some tips on how to choose the best trading approach for yourself:
- Know yourself: Before you decide which trading approach to follow, you need to know yourself as a trader. You need to assess your personality, preferences, strengths, weaknesses, goals, objectives, risk tolerance, time availability, etc. You need to find a trading approach that matches your trading profile and suits your trading style.
- Test yourself: After you decide which trading approach to follow, you need to test yourself as a trader. You need to practice your trading skills, strategies, techniques, tools, indicators, etc. You need to use a demo account or a small live account to test your trading performance and results. You need to find a trading approach that works for you and delivers your desired outcomes.
- Improve yourself: Once you find a trading approach that works for you, you need to improve yourself as a trader. You need to keep learning, researching, analyzing, experimenting, etc. You need to keep track of your trading progress and results. You need to keep refining your trading plan and system. You need to find a trading approach that grows with you and helps you achieve your trading goals.
Conclusion
In this blog post, we have compared and contrasted long term forex trading vs short term forex trading in terms of various aspects, such as trading style and frequency, trading goals and objectives, trading risks and rewards, trading tools and indicators, trading psychology and emotions. We have also discussed the pros and cons of each trading approach, and given some tips and recommendations on how to choose the best trading approach for yourself.
So, which one is better: long term forex trading or short term forex trading? The answer is: it depends. It depends on various factors such as your personal preference, trading experience, market conditions, etc. There is no one-size-fits-all solution for forex trading, as different traders have different needs and expectations. Therefore, the best way to find out which one is better for you is to try both trading approaches and see what works best for you.
We hope that this blog post has been helpful and informative for you. Thank you for reading this blog post! Happy trading!