Best strategy for long term trading
Sooner or later, every beginning investor comes to realize that they need their own trading strategy. You can, of course, use ready-made strategies, but they also need to be adapted to you: to your own trading style.
What is a trading strategy?
A trading strategy is a set of actions you take to make a profit. In simple terms, it is a set of preferences that determine how often you place trades and how long you hold them open.
This will depend on the size of your account, how much time you can devote to trading, your personality and your risk tolerance.
It is based on short-term trading as well as on long-term trading.
A trading strategy allows you to:
- Create a clear instruction to execute trades
- Eliminate the emotional component
- Evaluate historical returns
It is necessary to understand that a trading strategy is first necessary to make a quick and correct decision. When following the trading plan, the trader trades calmly and confidently, making notes on purchases and sales in the trader's diary. And this is important, later on using the diary you can analyze your trading, find weak points of the strategy and add something new. After all, everyone knows that markets change over time and strategy has to timely adapt to new conditions.
Using a trading strategy, the trader knows that, if the rules are followed, there will be more profitable transactions than unprofitable ones, and as a result he will be in the black (if it was confirmed by the preliminary testing on the history). Even if a few losing trades have occurred, it should be expected that the situation is likely to straighten out.
The trading strategy will help to see a potential entry point on the charts. It is necessary to analyze this information and decide whether this entry point is optimal and whether entering the market in these circumstances will be justified.
Types of trading strategies
Each trade has its own life cycle. Some exist for a few minutes or hours and are closed by the end of the trading day. Others last for days, weeks, or even years. Depending on the duration of trades, trading strategies are divided into: short-term and long-term.
Short term strategy
Speaking of the types of strategies, traders usually pay much attention to short term systems.
This is a potentially profitable variant of trading, but it requires a lot of experience, as well as knowledge of technical analysis.
Short-term traders open from several deals to several dozens of deals every 1-3 days. If orders are closed on the same business day in which they were opened, these strategies are called intraday.
If during the same day a trader opens a lot of deals, which are closed with minimal profit (2-5 pips) after a short time, these trading systems are called scalping. All of them are short term strategies, because they have the main feature of having a short cycle of trades.
Long-term trading strategy
In this case the holding of an asset may last up to a year or more.
Such an approach can already be equated with investment activity. It is the investment that most traders want to get into overtime. Positions are opened with fundamental analysis in mind. Company reports and market news must be considered. A deal can bring huge profit without constant control of the trader.
The strategy of long-term trading requires a rather big deposit. With the right approach and big capital the result will be impressive, but there is not much to do except to use good analytics.
In long-term trading, you can create a portfolio that will trade with low risks and high profits.
One of the main criteria for a trader or investor is liquidity. Essentially, it is the ability of an asset to be transformed into money we are accustomed to. Liquidity describes the constancy of demand for the financial instrument you have chosen. You should consider this parameter, as high liquidity of this or that asset is a chance to gain maximum profit.
Investors also pay attention to such phenomena as volatility.
Volatility is the price change of an asset/instrument over a certain period of time. In most cases, volatility is expressed by a curved line (if we are talking about a chart) with different levels of fluctuation.
The phenomenon of volatility, that is the norm for all exchange markets, is neither good nor bad! This means that the fluctuations exist, and it is reality, you have to get used to it and learn to work with it. In fact, periods of increased volatility are a great time to buy if you think the asset looks good from a long-term perspective.
Markets for Long Term Trading in Qatar
With technical accessibility and an abundance of market analysis tools, you can analyze most major global markets: stocks, indices, commodities, currencies, etc. This diversity allows you to see the big picture of the whole market and not to miss any important trend.
Trading stocks
Securities are carefully selected and purchased for as long a period of time as possible. Shares of reliable companies with high growth potential are used for this purpose. The most popular companies for investment are the leaders in their industry. With experience, it is possible to start buying shares from growth companies in new, promising industries.
Commodity trading
Like stocks, commodities are an asset class used in investing. The commodity market includes buying and selling instruments such as gold, wheat, sugar, oil, natural gas and hard metals. One way to trade commodities is to buy stocks of companies that are directly related to a particular commodity. Here is a simple example: Instead of investing directly in oil, you can buy shares of a refining company. With commodities, you can diversify your investment portfolio and also protect it against inflation.
Commodities, such as physical gold bullion, may be held directly by the investor or the trader may use securities, mutual funds, ETFs or futures contracts to trade.
Trading indices
Nowadays, many traders don't miss the opportunity to trade stock indices.
A stock index is an aggregate of stocks designed to replicate a particular market, sector or commodity.
Long-term investing in indices tends to be not only more profitable, but also less risky for the investor. Thus, all investors can choose the index investment approach and invest in exchange traded funds (ETFs). Another important factor in investing in index funds is diversification.
Forex
If a trader is not in a hurry, has a sound capital and considers Forex investing to be primarily about diversifying his or her asset portfolio, he or she will of course be interested in selecting an investment strategy that performs well over the long term.
In this way, you can preserve and multiply your savings by increasing the value of the currency.
Both technical analysis and fundamental analysis may be used for long term strategy in the Forex currency market. In most of the cases, technical analysis is used by private traders, while fundamental analysis is more popular among professional traders in asset management companies.
The best long-term trading strategy
What are the best long-term trading strategies ? They should be simple and straightforward, yet still give you a good return. Not all trading systems fit these parameters.
How to choose the best long-term trading strategy?
When choosing a strategy, you should be guided by your own preferences. Choose the one that suits you and see if you like it? Will you feel comfortable and confident trading with this strategy?
It is also possible when you take only certain elements (an indicator or a method of analysis) from a system, and thus keep the best and build your own methodology over time.
Now we will tell you about the most effective methods.
Trend following
The trend trading strategy is quite simple and is based on four moving averages. The goal of this strategy is to take advantage of the trend and enter on price corrections in order to maximize your profit/loss ratio.
There are various trend indicators, but one of the simplest and most effective ways to analyze trends is to use trend lines.
The main task of a trader, who wants to start trading in the direction of the trend, is to identify that trend. And the easiest tool for this is the moving averages' indicator, which, when added, makes it fairly easy to understand which way the market is moving.
Trend-following traders go long when the security's highs are consistently rising, or go short when the security's highs are consistently falling.
Trading on the trend increases your profit percentage, gives a good risk-to-reward ratio, and can be used in any market and any timeframe.
Carry Trade
The Carry Trade strategy is based on a simple idea of making money on the interest rate differences of different assets. In fact, in most cases, it comes down to two simple steps: you purchase currencies with low interest rates and then invest in high-yielding assets - currencies from emerging markets, real estate, securities, or certain commodities that increase in value. To minimize the risk of a Carry trade transaction, you should not only invest in assets of a country with a higher interest rate, but also choose safe assets.
The strategy is considered low-risk if the funds are borrowed from trustworthy issuers. Low volatility and high liquidity are also important.
Trading a Carry trade only makes sense if a market participant has large sums of money at his or her disposal. Nevertheless, this strategy is also interesting for small investors because it allows them to make profits for years with minimal participation and relatively low risk.
Buy and hold
A simple long-term trading strategy is "buy and hold".
The essence of the strategy is to choose shares for long-term investments and hold them for a long period of time, counting on increasing profits of chosen companies and the consequent growth of their share prices.
Pros:
In the long run, the stock market always rises. This means that even after significant drawdowns during crises, it once again renews its highs.
There are other arguments in favour of this strategy, for example:
- Minimal time expenditure on account monitoring and maintenance.
- No need to constantly analyze the market yourself and review the analysts' analyzes.
- It is easy to invest more money (you need to buy the same set of assets in the same proportions).
Trading on the pullback
A pullback in trading refers to a price movement into the middle range, usually 50%, of the previous movement. Every asset has a certain middle point. This is the area from which the price pulls back.
It is a trading strategy based on the daily chart, which implies opening trades only in long positions.
What does the pullback mean?
The price is stopped by the demand from the complete failure downwards. By this demand, we mean limit buy contracts or pending buy orders. The price hits the cluster of limit orders, after which a pullback occurs.
By trading on a pullback, the risk can be significantly reduced due to the fact that the investor will trade at key market levels, which have been previously shown to be support or resistance (depending on the direction of the price).
Key levels are points where price stops and can very quickly change direction (reversal). At these points large price movements are possible in favour of the transaction.
Breakout strategy
The trade of breakdowns is a well-known and widespread trading strategy. Trading the breakdowns, you can get a good result. The essence lies in the fact that you should first build support and resistance levels and identify the price corridor between them. After that, the points for entering the market in the direction of breaking through one of the levels are defined. That is, if the price breaks through the resistance level - buy, support level - sell.
Breakouts can provide good trading opportunities. The reason for this is that breakouts often lead to new price movements and trends.
Therefore, traders can enter a potential emerging trend at the very beginning of it. In addition, many of the more reliable breakdowns tend to occur during strong price momentum, and traders try to maximize their profits from quick price movements.
Whatever long-term trading strategy you choose, know that to limit your risk in trading, you need an exit plan. And when a trade goes against you, Stop Loss and Take Profit orders are an important part of that plan. They act as insurance and are essentially reverse orders. When placing a trade, the Stop Loss and Take Profit orders should be set according to the rules of the trading strategy the trader is following. To have a consistently successful trade these orders should be applied without fail.
How to apply a long-term trading strategy in Qatar?
If your trading system uses common tools such as moving averages or other technical studies, the most effective approach would be to use a trading platform.
A professional online platform is a programme for online investing opportunities, which can be used on different gadgets and in different versions.
All you need to do is to complete a simple registration. If you wish, you can install a special app on your smartphone, and then track your investments from wherever you are.
Try out your strategy on a demo account, which will be available to you as soon as you sign up. While it's great to check out the strategy on your history, it will show real time, online so to speak, and 100% certain nuances will emerge.
The essence of the demo account is that you are not working with real money, but with virtual. A demo account is a training simulator, on which you can test and select the best strategy for long-term trading.
If all goes according to plan and your strategy gives a positive result after testing on a demo account, you can try it out for real money. There is a mandatory minimum deposit, but if you are confident you can start with a bigger amount.
It is worth saying that a long-term trading strategy is the investor's road map, without which it is dangerous to start out on the stock market. That is why it is so important to explore several options and settle on the best and most profitable one.
Secure your financial well-being and start investing today!