Best strategy for long term trading
What is a trading strategy?
A trading strategy is a predetermined set of rules that a trader has developed to manage his trade.
Developing a trading strategy gives the trader the following advantages:
- It removes emotion from trading. A trader who uses a strategy knows what to do depending on what the market is doing. A trader who does not have a strategy tries to make decisions when the market is open and can become emotionally attached to positions. He may panic and feel indecisive when the market moves against him because he has no prepared response.
- Saving time. Developing a trading strategy that has an advantage is hard work. However, once the rules are developed, they can easily be automated to free the trader from having to watch the chart all day and provides time to develop further strategy.
However, developing a trading strategy that is effective can be a difficult process. There are computer programs that automate the process. Unfortunately, the ease with which systems can be developed and optimized with these programs can be misleading to the careless trader. The strategy must be built around some kind of statistical advantage. This is an advantage that will exist over time and create positive cash flow for the system and the trader.
The basis of the trading strategy is usually laid down:
- Rules of market analysis (fundamental and/or tehanalysis) and finding favorable opportunities
- Rules for entering a position when the forecast is favorable
- Rules of position holding
- Rules for exiting a position
- Risk management
- Rules of error correction
Any trading strategy must be coordinated with the trader's personal qualities and discipline. How does he analyze information coming from the market and assess its nature, how does he create a forecast based on factual data. Whether he is inclined to retain profits and cut losses. A ready-made trading strategy is like a clear plan of action that is applicable to both manual and automated trading.
Let's look at different types of strategies.
By the way of market analysis
- Indicator trading systems
- Non-indicator trading systems
Indicator trading systems, as the name suggests, use indicators in their work. The principle of work according to the indicator strategy is to receive signals from indicators, which are used on the price chart, in order to determine the best conditions for market entry. Indicators can be used as built-in terminals, as well as those developed personally. At the current moment it is the most popular trading system among traders.
Non-indicator trading systems are based on the analysis of the price chart in order to find patterns, which gives an idea of where the price will move. By the way, a pattern in Forex is a kind of analysis of the figures formed on the candlestick chart, which suggest either the continuation of the trend, or a reversal. The most famous patterns are: pin bar, doji candlestick.
By type of analysis
Technical analysis involves studying the price chart and finding any patterns on it. One type of technical analysis is graphical analysis.
Fundamental analysis implies studying macroeconomic indicators of the country, whose currency we trade, as well as news, earnings reports, etc.
By the way of opening a trading deal
- Trend trading strategies
- Counter-trend strategies
Trend strategies imply opening a position in the direction of the trend. The main requirement for such strategies is the correct identification of the trend direction.
Counter-trend strategies implies opening a position after a strong price impulse in the opposite direction. It is designed to determine the levels at which other market participants will close their positions. This strategy can bring a fairly substantial profit, but at the same time, it is very risky.
By type of market entry
- Opening of a deal on breakout
- Opening of a position on a rollback
The transactions on the breakout are opened in the highly volatile market when the prices change rapidly at the breakout of the local extrema. The minus of this strategy is the relatively high Stop Loss level.
The opening of the transaction from the rollback allows you to estimate the potential of a course of the price, thus the position is opened with small Stop Loss. The strategy is applied, as a rule, at zigzag price movement.
By technical characteristics
- Automatic trading systems
- Manual trading systems
Automatic trading systems trade for a trader himself, they analyze the current situation at the market and open deals.
As a rule, manual trading systems contain only an analytical algorithm which gives traders signals for entering the market. The trader makes decisions about opening deals by himself.
Automatic trading systems, as well as manual ones, can be paid or free. Free of charge ones are widely available on the Internet. Paid trading systems can be purchased directly from the developers or through intermediaries, who sell such systems over the Internet.
Aggressive, moderate, and conservative strategies
- Aggressive strategy aims to profit whenever possible, even with risk
- Moderate strategy implies that it is better to refrain from risk if there are doubts
- Conservative strategy allows you to make transactions only on very strong trading signals
In general, all these strategies are worth each other: aggressive ones bring a lot of income, but it is largely compensated by losses. Conservative ones bring less income, but the losses are much less as well.
By trading time
- Long term
Short-term strategies imply trading within one day, without carrying trades to another day. This strategy is the most popular among beginners. This is the most risky of these strategies, as during the day there can be a lot of volatility, but it allows the trader to observe the price movement.
Scalping can also be referred to here - this high-risk strategy involves opening many trades, preferably for a minimum time, in order to make 3-5 pips profit, after which the trade is closed.
Medium-term strategies are designed to hold a position for 2-3 days to several weeks. It is necessary to have a considerable deposit able to withstand the considerable drawdowns. This strategy requires a certain endurance and patience, but the result will be appropriate.
Investments for a longer period are referred to as long-term investments. They are chosen by investors who are not chasing a quick profit and are willing to wait a long time for a return.
If successful, long-term investments and financial investments give investors the opportunity to provide themselves with a "safety cushion" for the rest of their lives and look to the future with confidence.
Long-term strategies can use a long time frame, from a few weeks to several years.
Let's take a closer look at the best long term trading strategies.
Long term investment
Long-term investments allow investors to earn, albeit slowly, but surely: for example, buy shares of a promising company and hold them for years. Those who bought Apple stock when the company first started have made millions. The same applies to early investors in bitcoin and other cryptocurrencies - those who managed to invest money in the early stages and did not sell it during the first spikes in the rate now have significant capital.
There are two types of long-term deposits:
- financial investments
- real investment
Financial investments include deposits in stocks or securities for a period of several years. Such investments bring constant income, that is, the depositor receives an annual or quarterly profit. In addition to receiving dividends, the securities themselves can be sold, and, if necessary, bought in addition.
Real investments are investments in land, real estate, equipment, developments, materials, construction, or rights. Such investments involve significant start-up costs, but can bring good returns. Start-up costs for real estate investments can be reduced by using a mortgage.
Long-term investment risks
There are risks of long-term investments:
- No quick income. Long-term investments, as a rule, do not imply instant income. Although some long-term investment strategies allow you to get high passive income almost immediately. We'll talk about them below.
- There is a risk of losing money and not making a profit. There is such a risk for any financial investment.
- Loss of liquidity. If you make a mistake with the choice of securities or real estate, then they may not bring any income and fall in price, and it will be difficult or even impossible to sell them due to low liquidity.
All risks are reduced to zero if you carefully analyze the investment project and diversify your investments by distributing them among several objects. Let's consider the main types of long-term investments.
Long-term investment in stocks
Securities and shares are a popular type of long-term investment. But you need to be able to analyze the companies whose securities you purchase in order to correctly assess their growth potential. Long-term equity investments can make you a wealthy person if you find the “new Apple” or “new Microsoft” before they take off. Apply the diversification rule: buy securities and shares of several companies, do not invest all your money in one project, even if it seems to you potentially profitable.
A type of investment in stocks is a strategic financial investment with the aim of acquiring control over a certain company. To acquire control, you need to buy out a large number of securities or shares - a controlling stake. Usually, the buyback does not take place immediately, but over several years, until the investor gets a controlling stake in his own hands. This system works well in the West, where large corporations take over small companies or buy out promising startups.
As for online trading, everything is simpler here. By investing in the company's shares through an online brokerage platform, you open a CFD contract, which involves speculating on the price of an asset without having any property rights to the asset itself.
Long-term investment projects in precious metals
Precious metals, unlike stocks, do not pay dividends and, unlike real estate, they cannot be rented out. All that an investor can count on is the rise in prices for gold, silver, platinum and palladium, and the opportunity to resell them after a few years is much more expensive.
The gold rate has a clear tendency to rise in price or fall in protracted trends - 10-20 years. For 1-2 years, precious metals can remain at the same level or even fall in price, so investing in gold for the short term is risky.
As an investment tool, gold has advantages:
- It is a precious metal with objective value. It will never depreciate.
- The amount of gold is limited, which supports the demand and the price for it.
- Gold is durable: it does not age.
- Gold is a reserve means of payment. In times of financial crises and a fall in the dollar exchange rate, its price tends to rise.
- Gold is an industrial material, which also creates additional demand for it.
Back in the 18th century, the price of an ounce of gold was set at $ 19.35. Now its price is about $ 1250.
Long periods of stagnation in the gold rate are replaced by sharp surges in the price of the precious metal. Therefore, in the long term, gold can be a profitable investment.
Investing in cryptocurrency: risks and prospects
Another long-term investment option is cryptocurrency. This option is more risky compared to real estate and often raises doubts among traditional investors who do not understand the essence of digital coins and are afraid to invest in assets that cannot be touched with their hands.
But as practice shows, investing in cryptocurrency can make an investor a millionaire if he is patient and does not rush to sell his cryptocurrency investments. In 2010, bitcoin was worth less than a dollar, but in 2018, even taking into account the market drawdown in the first half of the year, its value was more than $ 6,000 and this year the price of bitcoin has reached an all-time high and is more than 67 thousand dollars.
In the long term, bitcoin, ether and other top 20 cryptocurrencies are growing. Almost all of them have grown thousands and millions of times over the several years of their existence. This shows that the buy and hold tactic in the cryptocurrency market is the best long term trading strategy.
Cryptocurrencies remain a risky investment tool, so don't invest all your savings in cryptocurrency, diversify between different coins, and don't invest more than you are willing to lose.
Investing in cryptocurrencies is an investment at your own peril and risk, but if successful, the income will be significantly higher than in any other niche.
It is recommended to buy cryptocurrencies for a long-term period, because in the short-term period the rate can go both in one direction and in the other direction. Cryptocurrencies are a highly volatile asset. Bitcoin can rise or fall in price by $ 1,000 per day or more. But if you look at the chart of the bitcoin rate over 5 years, it is obvious that long-term investors always remain in the black.
What is the best strategy for long term trading?
For successful trading, it is advisable for a trader to study all types of strategies, their advantages and disadvantages, and choose his own.
Each long-term trading strategy has its pros and cons, you just have to define your trading style and stick to it all the time. To get the most out of your trading strategies, you need to build an entire system.
Suppose you have chosen a trading strategy for yourself, then it's time for you to register on the online platform.
How to start trading in South Africa?
Registration on the online platform
You will be able to create an account in just a few minutes. For your convenience, brokerage companies have simplified the registration on the platform. Just enter your username and email address. A letter will be sent to your email, follow the link indicated in the letter and your account will be ready to use.
Even if you have chosen a simple long term trading strategy for yourself, for a start it is better for you to practice on fast deals, and this is convenient to do using a demo account.
Just click a button and a certain amount of fictitious virtual funds will be credited to your account for test trading, and you can practice until you feel ready to trade on a live account.
To activate a real account, please fund it. Usually the minimum deposit you need to make is just a few dollars. Choose / how it is convenient for you to pay - bank cards, bank transfers or e-wallets. Once the funds are credited to your account, you can start trading.
Try it and you will succeed!