How to Build a Long-Term Trading Strategy

If you are interested in long-term trading, you will need to consider a strategy. This method differs from short-term trading, where traders hold positions for a brief period such as from a few minutes to several weeks.

Short-term trading focuses on making quick profits from price fluctuations. The most common types of short-term trading are day trading, swing trading, and intraday trading.

With long-term trading, you will open a position with the intention of holding it for anywhere from a few months to 20 years or more. Long-term trading is a more sustainable strategy often referred to as buy and hold investing.

In this guide, you will learn about the process of creating a long-term trading strategy. This includes the importance of consistency, risk management, and clear goal setting.

What Is a Long-Term Trading Strategy?

Long-term trading with foreign exchange and CFDs have several advantages.

CFDs, or contracts for difference, allow you to trade currency by predicting its future price trajectory. Unlike when trading with forex, you do not need to buy the actual asset.

Long-term trading forex or CFDs can help to diversify your portfolio. This mitigates the risk that comes with a single asset portfolio.

Long-term trading with a diversified portfolio can also develop you into a patient and disciplined trader. Rather than watching the stock market constantly, you can relax and allow your investments to work for you.

This strategy is also ideal for traders without the time to monitor the market every day.

Long-term trading differs from short-term styles such as day trading or scalping.

In day trading, traders will open and close a position on the same day. By buying an asset when the market opens, and selling it before the market closes, day traders can take advantage of short-term price fluctuations.

Scalping is also a fast-paced style of trading. Scalpers will often make trades within just a few seconds, using high leverage to benefit from small price movements.

Long-term trading allows you to focus on bigger trends rather than short-term patterns. When choosing an asset to invest in, you should ensure you select one that aligns with macroeconomic factors such as interest rates, inflation, GDP, and employment rates.

For example, if there is political or economic instability, the US dollar is typically a safe asset as it is a global reserve currency.

Trading platform Plus500 makes it easy to manage long-term trades thanks to its flexible platform and mobile app.

80% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. *CFD trading via Plus500’s demo account.

Benefits of Long-Term Trading

There are several advantages of building a longer-term approach to trading, especially for newer or part-time traders.

Less Stress and Fewer Decisions Than Day Trading

The key factor of long-term trading is that you buy an asset and hold onto it, so you do not have to feel stressed about the day-to-day movements of the stock market.

Lower Transaction Costs

As you will be using the buy and hold trading strategy, you will be making fewer trades. This results in lower transaction costs, meaning you can afford to invest in longer-term trades.

Better Suited to Fundamental Analysis and Trend Following

Long-term trading is a great opportunity to use the strategy of fundamental analysis and trend following.

This tool involves evaluating economic and geopolitical factors to determine which assets to trade. It is great for long-term trading, as you can identify historical patterns to inform investment decisions.

More Time for Thoughtful Decision-Making

By choosing a long-term trading strategy, you can avoid making rash buy-and-sell decisions that you may later regret. Holding onto your investments provides you with time to make carefully considered decisions.

Reduced Emotional Pressure

The stock market is highly volatile, and its fluctuations can make traders make transactions based on emotions.

With buy and hold trading, you can detach yourself from the commotion of daily price movements and focus on your long-term strategy.

Steps to Building a Long-Term Trading Strategy

Being successful and building wealth by long-term trading will require a strategy that details steps from initial goal setting to execution.

1. Define Your Trading Goals and Risk Tolerance

To get started long-term trading, you will need to define your goals and tolerance for risk.

Consider what you want to get from long-term trading, whether that be capital growth, income, or diversification.

Before you deposit and buy an asset, you need to identify how much capital you have to invest. In addition, you must determine how much you can afford to lose if the value of your asset should decrease.

To practice getting started with trading, you can use Plus500’s free demo account. This useful tool will give you an unlimited virtual balance so you can test various trading strategies with no risk.

2. Choose Your Markets and Instruments

Once you have used Plus500’s demo account and you are comfortable with making trades, you can select the assets you would like to purchase.

It is a good idea to select a few asset classes to diversify your portfolio. Consider investing in forex, indices, stocks, commodities, and crypto.

When long-term trading, you will want to choose assets that will perform well over an extended period of time. You can use the Plus500 charts and tables to identify markets that have consistently performed well.

In addition to physical assets, Plus500 offers a wide range of CFD instruments suited to long-term strategies. With CFDs, or contracts for difference, you can predict the future price trajectory without needing to buy the asset.

3. Use Fundamental Analysis to Guide Trades

One of the most important strategies for long-term traders is fundamental analysis. This involves identifying an asset’s intrinsic value by examining factors such as company reports, interest and inflation rates, and other financial and geopolitical data.

Plus500 offers a range of tools to assist with fundamental analysis to inform your long-term trading decisions.

You can use Plus500 to apply insights to anticipate long-term price direction. The platform also provides an economic calendar and updates on market news.

4. Combine With Technical Analysis

Unlike fundamental analysis, which analyzes the current intrinsic price of an asset, technical analysis determines the asset’s future price.

Technical analysis is typically used for short-term trading, but it can be used alongside fundamental analysis as part of a long-term trading strategy.

Two of the most popular technical indicators are RSI (relative strength index) and MACD (moving average convergence divergence). They both track the price momentum of a stock or asset and provide signals to traders.

The RSI tool helps traders understand whether a stock is overbought or undersold. Using this information can let you know whether the price is due to drop or increase.

If the MACD line crosses above the signal line, it is a bullish signal that indicates that it might be a good time to buy.

When the MACD crosses below the signal line, this is called a bearish signal. This indicates that it may be a good time to sell.

Used together, the RSI and MACD indicators can help you to understand when to buy and sell.

You can use the charting tools on Plus500 to visualize trading opportunities.

5. Set Risk Management Rules

All trading carries risk, and you should build risk management rules into your long-term strategy.

Two effective tools to mitigate risk are stop-loss and take-profit orders. A stop-loss is an exit order that will automatically close a position when the market reaches a certain level.

As well as a standard stop, you can also use a trailing stop-loss order. This is a more dynamic option, as it locks in gains as the price rises, adjusting automatically as the market moves in your favor.

Take-profit orders can also help protect your investment. They automatically close a position when the price reaches a level that locks in a profit.

Never risk more than a small percentage of your capital on one trade as it will be tied up until you sell.

One major advantage of the Plus500 trading platform is that these risk management rules can be easily set and managed, even after you have placed the trade.

6. Monitor and Adjust Over Time

It is important that you regularly review your trades and adjust them if needed. The market can change quickly, and you may need to adapt your trades to fluctuating conditions.

When trading long-term, it is a good idea to maintain a trading journal to track strategy performance.

Using Plus500 to trade allows you to set up alert notifications. This will ensure you stay informed without needing to constantly watch your account.

80% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. *CFD trading via Plus500’s demo account.

Common Pitfalls to Avoid

Long-term trading can be a great strategy that delivers a healthy profit. For the best chance of success, avoid making these common mistakes:

• Overtrading or reacting emotionally to short-term noise
• Failing to stick to a plan
• Ignoring macroeconomic changes
• Not reviewing or adjusting strategy regularly
• Misusing leverage over a long timeframe

Frequently Asked Questions

Final Thoughts

Requiring less time commitment and minimal capital, long-term trading can be a great option for many, especially beginner traders.

With patience, clear planning, and the right platform like Plus500, you can achieve consistent results without needing to constantly monitor the market and react to every price fluctuation.

WikiJob does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

80% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. *CFD trading via Plus500’s demo account.