Best strategy for long term trading
There are a wide variety of investment strategies, styles and trading techniques available in the financial markets.
They provide support for beginners and allow them to understand the market and predict course movements. Without them, the trader inevitably makes mistakes, suffers losses and does not see where to go next.
Today, we will introduce you to the best long term trading strategies that both professionals and novice traders in Somalia use.
What is a trading strategy?
A trading strategy is a developed system of rules for successful trading on the market. The logic of a trading strategy should be clear and straightforward: what to do, when to do it and in what sequence. If an investor or a trader chooses the right system, income will not be long in coming.
In fact, it is a precise plan of action in different situations. It describes different scenarios in the market and the rules of trader's actions when any of them occurs. And the success and profitability depends on how well-balanced the system is and how well-developed it is.
Having the best long term trading strategy saves the user from doubts and speculation about when to enter the market. A clear strategy also helps to avoid unnecessary actions and close the deal with confidence.
You should understand that any long term trading strategy determines not only where and how to enter trades and how to exit them, but also how to deal with risks, how to control and manage them in favour of profitability of your trading results. It helps to understand when it is worth trading, and when it is better to do nothing and just stand aside. And if the situation is favourable for making a deal, the trader knows exactly what to do, relying on the system.
In addition, the strategy allows you to track and correct mistakes. Making trades using the same rules, an investor can see the weaknesses of his trading system and adjust his approach to working in an online exchange.
Anyone can learn a simple long term trading strategy, as long as he or she takes the time to do it. Learn the basic concepts and terms, so you will not have any questions.
Types of trading strategies
The very first step in creating your trading strategy is to determine the time frame in which you will work for. This will largely determine your trading style, as well as the time and effort you will have to put in.
Short Term Strategies
They are often referred to as intraday, as the opening and closing of trades is done within the same trading day. For instance, you analyze the market in the morning, make calculations and forecasts, open a position, and close it the same evening. This variant can be called the longest, because most often deals are closed after a few hours, and when using scalping techniques, the time from opening to closing a deal may be a few seconds at all.
Such a variant requires almost constant presence in front of the trading terminal window because of the need of continuous monitoring of the market situation. Good conditions for transaction opening may appear within several minutes, and it is necessary to react to them immediately.
The apparent advantage of short-term trading is its high profitability because you are always in the market and do not miss a single signal. But this is also the reason of higher risk.
When working on a short term trading strategy, it is very important to have enough knowledge, the ability to see the situation on the market as a whole, as well as the experience, which allows you to avoid making bad decisions in the specific conditions of low timeframes.
Long term strategies
As part of a long term trading strategy, positions will remain open for a period of one week to several months or years.
The great advantage of such strategies is the fact that they operate in an environment of minimal market noise, where the overall price movement vector is actually driven by fundamental economic data.
However, in order to hold a trade following such type of strategy and get considerable profit, it is necessary to have a large deposit. In fact, long term traders aim to profit from one trade.
Pluses of the best strategy for long term trading:
- Calm trading.
- No significant price fluctuations.
- Stability in positive trades.
Depending on the amount and duration of the investment, there are two basic approaches: technical analysis and fundamental analysis. Both methods are equally indicative of market conditions and complement each other.
With technical analysis, you can predict future price developments on the basis of past price movements. It is based on analysis of price time series, most frequently on charts of different timeframes. In addition to this, information about trading volumes and other important statistical data is used. A trader conducts technical analysis in order to determine the best conditions for opening a position on the market, i.e. buying and selling.
Fundamental analysis is used for researching financial and economic conditions of the sectors, separate companies and their investment attractiveness.
It helps investors understand whether assets are currently undervalued or overvalued, i.e. whether they should be included in a long-term investment portfolio.
An investor can conduct a fundamental analysis of an asset's value by examining revenue, earnings, growth potential, return on equity, profitability ratios and other data.
It is worth mentioning that in practice a combination of both technical and fundamental analysis is often used.
An investor who uses even a simple long term trading strategy should realize the following: to make sure the asset brings maximum return, and to trade with minimum risk, you need to pay attention to two main parameters - liquidity and volatility.
Volatility is a measure of price movements over a unit of time and indicates the volatility of the price. Simply put, it is a measurement of the speed and amount of up and down movements of an asset's price in a given time frame. A high volatility trading tool contributes to both the possibility of decent earnings and a high probability of making losses. Any trader or investor should keep this in mind.
Liquidity in trading is the property of an instrument to be sold or bought quickly. The higher the liquidity of an instrument, the easier it is to buy/sell it. The higher the liquidity - the lower trader's expenses for the transaction. The less liquidity - the more expenses for the transaction, and therefore it may become unprofitable.
Liquidity and volatility are closely related. It is liquidity that influences how much (volatility) the price of a financial instrument will move.
Markets for long term trading in Somalia
If preserving your capital is key to you, then trading strategy long term will be an excellent choice.
There are many markets available for long term investing. Let's take a look at the most popular ones.
Stock trading is the most common and easiest way for internet traders. Buying stocks profitably means finding an undervalued asset that has all the signs of making a profit in the long run.
You can find a variety of securities to suit all tastes on the trading platform.
With long term investments, trades are not made every day, a trader creates an investment portfolio and holds it for years. Periodically, there is rebalancing (removal of "bad" securities from the portfolio and inclusion of promising ones), but in general the work is based on the Buy & Hold strategy. You do not need to check price movements every day, but you can check quarterly or annual reports and company recommendations.
It is advisable to choose stocks of companies operating in different sectors, e.g. airlines and energy companies. It is also advisable to include in your portfolio companies operating in different countries and having different capitalization.
The commodities market includes buying and selling instruments such as gold, wheat, sugar, oil, natural gas and hard metals. By correctly assuming a rise or fall in price, you will profit from the transaction.
Commodities can be very volatile, experiencing large fluctuations in price. Trading CFDs on them is one way to profit from these fluctuations. Another good option for investing in commodities is to buy shares in commodity corporations that mine, process, and refine commodities.
Finally, you can buy the underlying asset. That is, you can participate in the appreciation of the commodity directly by buying the commodity in the form of futures, ETFs, options, etc.
The big advantage of commodity investments is the fact that it is a totally different market, not related to currencies and equities, therefore investors can use commodity trading to diversify their portfolio.
Index investing involves investing in stocks underlying one of the many stock indices. Shares are bought in the same proportion as they are included in the index, and the value of the portfolio grows with the value of the relevant index.
The main advantage of index trading is that it is the simplest and at the same time the most secure kind of investment, which can also bring quite a good return.
By choosing a particular index, you can instantly invest in a diversified basket of stocks and thereby minimize the risk associated with your investment portfolio. Because this index is made up of companies operating in a range of sectors, you will be investing in stocks that do not correlate with one another, meaning that when one falls in value, the other will rise because of the different characteristics of the sectors and industries in which they operate.
Investing in an index and holding that investment for a long term investment strategy is a low-risk approach, as all losses from the index can be offset over time. After all, over the long term, equities are the most profitable asset class.
In the forex market one can buy, sell and exchange some currencies for others. You make money by guessing currency fluctuations, which allows you, for example, to buy a dollar cheaper today and sell it at a higher price later, when the exchange rate rises.
Before creating an order and setting Stop-Loss and Take-Profit levels, a trader needs to thoroughly analyze the currency market. The trader should determine as accurately as possible whether the price level of the applied currency pair will be able to move in the necessary direction in the future. Consequently, a trader needs to determine exactly whether he will be able to get the profits he wants to create a trade.
Forex works round the clock and this gives an opportunity to earn on it in your spare time. It is the most liquid market in the world, as millions of trades occur here every day, each of which is backed by currency. There is always demand and there is always supply. The market turnover is measured in trillions of dollars.
The best simple long term trading strategy
With all the abundance of profitable, efficient and best trading strategies out there, choosing a long term trading strategy is by no means an easy matter, requiring a full commitment from the trader. Below, we will present several options that have been widely used in recent years and are still a popular choice from the list of the best strategies. By testing them out, you will be able to find one that suits your needs.
This strategy long term trading is considered one of the most correct and reliable.
It is based on a signal from a technical indicator (moving average, breaching the previous maximum/minimum, head and shoulders pattern, etc) and is moving in the direction of the market. In simple words: if market goes up - investor buys, if market goes down - investor sells.
This strategy assumes that if there is an established trend in the market, it is likely to continue in the future. In addition, traders following the trend will keep their initial positions long or short open until they believe the trend has reversed.
Carry trade is the sale of currency or securities of a country with a low interest rate by its central bank, in order to buy the currency or securities of a country with a higher interest rate.
In other words, it is the purchase of high-yielding currency or debt securities denominated in it for a currency with a low cost of borrowing. Generally, a carry trade exploits the difference between a low inflation rate in developed countries and a higher one in developing countries.
Interest rates tend to change fairly slowly, which ensures that carry trade transactions are relatively low risk. To minimize carry trade risk, it is a good idea not just to invest in the assets of the country with the higher interest rate, but also to choose safe assets. Carry trade only makes sense if a market participant has large sums of money at his/her disposal. Nevertheless, this strategy is also interesting for small investors, because it allows them to make profits for years with minimal involvement.
Buy and hold
Buy and hold is a passive strategy for long term capital investment. The basic idea can be expressed in just a few sentences - by buying a certain asset, the trader should be primarily interested in developments in the long term horizon.
Of course, for such trading methods, it is necessary to possess a certain amount of capital. Because even the longest profitable trend on a small volume of investments will not allow you to profit in full.
Assets in this case are in the investment portfolio regardless of fluctuations in market quotations.
The Buy and hold strategy will suit both professional investors and novice players. For the latter, this method can be adapted to any market with minimal changes, and most importantly, it does not require a lot of experience or special knowledge. The main thing is to see an asset whose price is near its multi-year lows and enter the market at the point of the least risk - when the quotes are closest to the support level.
Trading on a pullback
In every trend, there is a short term movement in the opposite direction from the main trend, which is called a pullback. Its duration and size may be absolutely different.
Traders believe that in such situations, the trend gathers strength for the further movement.
To put it simply, a pullback is most often a short-lived counter-trend movement of the price. In a downtrend it will go up, and in a downtrend it will go down. No trend is perfect, so pullbacks are common in all of them.
This is a simple long term trading strategy for those who believe the market is in a global trend. For instance, if you believe that stocks, bonds or gold will rise, you can use this strategy as an easy way to make money.
A level breakout is a trading idea, the essence of which is to catch the movement when the price breaks through certain key levels.
This versatile trading long term strategy can be used on any trading instrument.
This trading strategy is based on technical analysis. Its two basic elements are support and resistance. This strategy can be used to trade stocks, commodity futures, indices and other instruments where the price moves out of a trading range bounded by clear support and resistance levels.
How to apply the best long term trading strategy in Somalia?
So you have a great trading strategy, but don't know how to test it without risking your capital? You can easily do it on a professional platform by using a demo account. This service is absolutely free and will be available to you after you register on the terminal.
You just need to find out if the system you have chosen or built is valid. Whether it works in real conditions, not just in theoretical calculations.
On a demo account, you will learn how to open and close positions, set Stop Loss and Take Profit levels, use charts and indicators. Using a demo account will help you learn how to use the tools you have chosen in conditions, which will be as close to real trading as possible. At the testing stage, your task is to minimize the number of unsuccessful signals and deals by optimizing the tools. The fewer mistakes now, the fewer losses in the future.
If everything goes according to plan, and your strategy long term trading gives a positive result after testing on a demo account, you can move on to real trading. Once you have made the minimum deposit on the online platform, you will be able to open a trade immediately.
The best strategy for long term trading is the one that suits you. Determine your professional level and consider how much time you can dedicate to trading. Be consistent and disciplined, and you will succeed! Have a successful trading!