In Forex trading, there are a number of different ways to ‘skin a cat’, so to speak. These range from intra-day “scalping” to short-term trading and medium-term position trading. Personally, I’ve found that the greatest financial return can be expected from medium-term trading, where traders attempt to participate in multi-week moves and ride them for as long as possible.
Of course such trend moves don’t present themselves every day and they can take quite a long time to resolve, so they’re not every trader’s cup of tea. Many traders like the ‘participation’ aspect of the Forex market which means trading more frequently than medium-term trading might allow them to.
One of the problems many traders encounter with medium-term trading is the financial risk aspect. When identifying a trading situation, which has significant medium term potential, the targets will be big, and not wanting to be stopped out too soon a trader will often allow plenty of room on their stop loss.
The problem with this of course, is that if stopped, a significant loss can occur, resulting in an unacceptable loss of trading capital. The prudent approach in this situation is to reduce your trading size, ensuring that if you’re stopped out, the trading loss will not cause too significant drawdown in your trading capital.
A sound medium-term trading approach should include when a trader’s technical analysis detects pairs offering medium-term trading potential, objectives are then identified and the focus should turn to how to enter this trade-setup with minimal financial risk.
To do this, a Forex trader shouldn’t treat it any different to other shorter-term trading opportunities, with a stop loss that reflects this. If you’re stopped out, then no harm is done and trading capital isn’t compromised. A trader’s first objective could then be to move a stop loss to break-even as soon as practically possible. Thereafter if the trade starts going in the anticipated direction, they should try to stay with the trade for as long as possible and adjust the stop loss according to technical assessment as time progresses.
Profits are then either realised when the target is reached, or a subsequent trade setup occurs which contradicts the prevailing trend, or when the market stops you out via a trailing stop loss.
As this article outlines, you can see that there are significant benefits to medium-term trading. That being said, the single most important consideration when choosing a trading strategy or timeframe to trade, is to ensure it’s a style that suits your personality and lifestyle.
Many begin by trading when they have other job commitments, so perhaps they’re suited to trading different market sessions, or medium-long term where they can do their analysis over the weekend, and they only need to look at the charts once a day. Others may have the time and personality where they’re better suited to shorter term strategies and styles.
Source: Vantage FX Blog