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Basically, types of trading differ in time parameters. When we talk about short-term, medium-term and long-term trading, we are basically talking about how long the trader plans to hold his position.
In short-term trading, a trader holds a position from a few minutes to a few days, seeking to make quick profits from small price movements. The benefits of short-term trading are that you can make many trades in a short period of time without having to worry about overall market trends. However, short-term trading can be very stressful and require a lot of time and attention.
In medium-term trading, a trader holds a position for several weeks to several months, focusing on capturing larger price movements. The advantages of medium-term trading are that it takes advantage of market trends and sentiments and requires less attention than short-term trading. However, medium-term trading can still be stressful and one should be comfortable holding a position for a relatively long time.
In long-term trading, a trader holds a position for months or even years, focusing on overall trends and fundamental analysis. The benefits of long-term trading are that it requires very little attention and can be less stressful than short- or medium-term trading. Short-term market fluctuations have little impact on long-term trading. However, long-term trading requires a lot of patience and can be less fun than short- or medium-term trading.
Position trader
Long-term trading is also called positional. Position traders focus on macroeconomic trends and asset growth potential. They monitor market and macroeconomic trends to determine which assets they believe are most likely to increase in value over time. Position traders are looking for long-term profits, and some of their trades may take place over weeks, months, or years depending on when the most valuable options on their assets become available.
Position Trading Strategies
Position trading strategies involve ignoring short-term market noise and instead focusing on the long-term picture. This requires a strong foundation in technical and fundamental analysis as you will have to ignore short-term trend changes that can serve as trading opportunities. This means identifying markets with narrow price ranges and clear trends.
Here are some popular position trading strategies:
1. Support and resistance strategy
Uses support and resistance levels to find out whether the price of an asset will go into a downtrend or an uptrend. This will help you decide whether to go long and try to benefit from a long-term rise in prices, or go short and try to benefit from a potential long-term decline in prices.
The support line creates the lower price limit, and the resistance line creates the upper price limit.
Historical price levels can be considered support and resistance for an asset. Past periods of significant gains and losses can be indicators of price direction.
Some indicators, such as Fibonacci retracement levels, can act as dynamic support and resistance levels.
Previous support and resistance levels can indicate future movements. When a breakout occurs, support and resistance lines may change their roles.
2. Range trading strategy
If you have identified an oversold or overbought asset, range trading may be suitable for you. The goal here is to go long on oversold assets and short on overbought ones. An overbought asset here may approach a resistance level, and an oversold asset may approach a support level.
3. Breakout trading strategy
Here you need to wait until the price line crosses the resistance or support level. A long position can be taken when the resistance level is broken, and a short position can be considered when the price breaks below the support level. However, be sure to open a position during the initial stages of a trend.
The market changes periodically, moving from ranges to trends. If the market is in a range for a long time, it may break out stronger.
4. Trading around the main position
Trading around a core position involves taking a long-term position and then buying and selling the asset as the market develops. This means taking a clear view of risk based on when the market is moving and allowing you to diversify across time periods.
One of the best indicators for trading the main position is moving average (MA). Let’s say you take a long position where the price moves below the 20-period moving average but remains above the 200-period moving average. This is where you can take advantage of short-term weakness in an asset while the long-term uptrend continues.
What is intermediate-term trading?
Intermediate-term trading, also known as swing trading, involves holding positions for a moderate period of time, which can vary depending on the asset you are trading. Typically, traders can think of the medium term as being longer than one day and no longer than a few months.
The key advantage of trading on the middle time frame compared to short-term trading is that traders can avoid some of the noise and increased risk associated with the seemingly unpredictable swings that can define day trading. This is because the medium-term perspective focuses on trends that have had time to develop and become sustainable, rather than on short-term price movements.
Intermediate-term traders can benefit from both chart-based technical analysis to identify trends and predict support and resistance levels, as well as fundamental analysis of a specific asset, news events and macro factors.
Medium-term trading strategies
Momentum
Medium-term strategy momentum trading involves catching trends with the potential for strong momentum at the very beginning. For example, when an asset is undervalued and begins to gain strong momentum, you can enter a long position, assuming that the trend will continue and more traders will also look to buy.
To increase your chances of success, you need to be able to identify genuine cases of strong momentum, which requires experience and research – not all upward price movements indicate strong positive momentum. Technical indicators such as Bollinger Bands and Stochastic Oscillator can help determine the strength of a trend.
Range Trading
Using technical analysis tools to find support and resistance levels, range trading is one of the most popular trading approaches.
This type of trading strategy aims to take advantage of a range of currency pairs that generally move sideways between certain support and resistance levels.
Traders are looking for where buyers might run into trouble during an uptrend, i.e. what levels above the current market price might act as resistance. Conversely, they also seek to find support levels that act as a “bottom” preventing price from moving below those levels. One of the most popular forms of range trading is rectangle trading.
Swing Trading with Fibonacci Retracement
Fibonacci Retracement is a technical analysis indicator used by traders to find potential support and resistance levels on a chart. Based on a number series, Fibonacci uses horizontal price levels to identify potential areas of interest for buyers and sellers.
There are five commonly used Fibonacci retracement levels: 23.6%, 38.2%, 50%, 61.8% and 78.6%. Of these five, the three middle values (especially the 50% value) are considered the strongest. Fibonacci retracements are drawn by connecting the price point on the chart when an uptrend or downtrend began with the point when it ended. Essentially, you pair a swing high with a swing low, and vice versa.
Fibonacci retracements are one of the most popular technical indicators, and they tend to cause a market reaction when they merge with other support or resistance indicators.
Short-term trading
Scalping
Scalping is the shortest form of trading. Scalp traders hold positions open for a maximum of seconds or minutes. These short-term trades target small intraday price movements. The goal is to make many quick trades for smaller gains, but allow profits to accumulate throughout the day due to the sheer number of trades made in each trading session.
This style of trading requires tight spreads and liquid markets. As a result, scalpers tend to only trade liquid currency pairs such as EURUSD, GBPUSD and USDJPY.
They also tend to trade only during the busiest times of the trading day, during overlapping trading sessions, when trading volume is higher and volatility is higher. Scalpers look for as tight spreads as possible simply because they enter the market so frequently, so paying a wider spread will eat up potential profits.
A fast-paced trading environment where you are trying to scalp multiple pips as many times as possible during the trading day can be stressful for many traders and is very time consuming considering the fact that you will have to focus on the charts for hours on end . time. Because scalping can be intense, scalpers typically trade one or two pairs.
Intraday trading
For those who are not satisfied with the intensity of scalp trading, but still do not want to hold positions overnight, day trading may be suitable.
Day traders enter and exit their positions on the same day (unlike swing traders and position traders), eliminating the risk of any large overnight moves. At the end of the day, they close their position with either a profit or a loss. Trades are usually executed over a period of minutes or hours and, as a result, require ample time to analyze the markets and monitor positions frequently throughout the day. Like scalp traders, day traders rely on frequent small profits to generate income. The most volatile currency pairs are best suited for trading.
Day traders pay especially close attention to fundamental and technical analysis, using technical indicators such as MACD (moving average convergence and divergence), relative strength index and stochastic oscillator to help identify trends and market conditions. The most popular strategies are high frequency trading, trend trading and range trading.
Conclusion
It is important to remember that no one type of trading is inherently better than another. It all depends on your personal goals and risk tolerance. Short-term trading can be useful if you are looking for quick profits, but it can be very stressful. Long-term trading can be less stressful, but it requires a lot of patience. The key is to find a trading style that suits you and matches your goals and personality. Which timeframe to trade on is everyone’s personal choice.
The best broker for currency trading is Alpha Forex.
The best broker for commodity and CFD trading – FxPro.
