Holding a position for a longer time?

Beginner Questions
1

Hello,
I’m new to Forex trading. What I would like to do is use a Forex broker to take advantage of a currency which I think is going to rise in the coming months. I dont want to day trade, it’s more like a swing trade.

My thoughts are that I fund an account with a reasonable sum and go long with a small part of my equity in order to have enough margin to handle a downswing. Then if/when my trade starts going in the right direction I gradually increase my position by adding new longs (with a reasonable stop loss on the new longs).

I’ve been looking around and I seem to only find that people use Forex brokers for very short trades. Is there some reason for this and is there some error in my above theory?

Hoping for some replies.

Thanks!
RAJS

2

People use brokers for trades of every different kind of length. The day traders tend to be the most vocal, but in reality they are likely the minority given that most folks don’t have time to trade that way.

3

There’s no “right” or “wrong” way of trading.

When you trade longer-term, you’re exchanging short-term volatility for uncertainty. Personally, I feel that this is a disadvantage for retail traders, since the Big Money have analysts whose careers are entirely devoted to long-term fundamental analysis. They have better access to information than retail traders.

Unless you know something that the Big Money doesn’t, I don’t think there’s much of an edge. The main edge I can think of for retail traders is that we don’t need to crystalise quarterly income / growth to investors or employers. We’re free to “wait out” any long-term trends.

Just my thoughts.

4

Just to add a third voice to the other two you have received, I trade both Intraday and EOD and I use the same broker for both. I will happily hold a trade for as long as it is moving with me - I tend to trail my SL up or down and let Price take me out as it finally moves against me. I’ll hold these anything from a couple of days to a few weeks. The longer the better!

5

Perhaps not entirely in line with your question, but it may be helpful to tell you.

If you keep a trade open for a couple of months, beaware that you will pay roll-over costs daily. This can very between -1 and 1 pip a day. So that can kill your profit over time. I hope you considered this in your calculations.

If not, I was glad to be of assistance, if you did: Excellent!.

6

Although surely you’d only want to be holding a trade if it were moving further into profit. Personally I’d want to close a stalled trade. Frankly, if one pip a day is ruining your profit then there’s more wrong with the trade than simply the rollover charges!

7

The guy is new and asking what broker to take. I can imagine that he is not well known about semi-obvious costs. You know. I have had it a little with our FX-men comments… I am just sharing a thought here.

Forget it… This happens too often… You guys take charge, I’ll just continue socializing.

8

Ummm… okay, that’s a little strong isn’t it? First up, the FX-Men tag is simply something the site put under my name when I hit 1000 posts, it doesn’t signify any more than that and is not something I applied to myself. Secondly, I was not ‘taking charge’, I was simply saying that in my view if one pip a day makes a drastic difference to profitability then the setup/decision to hold the trade/whatever else needs looking at, that isn’t controversial or bossy, is it? I’m sorry if I have got your back up, or offended you, or misread the question, but I was simply trying to be helpful to OP. In the vast majority of my posts I write something along the lines of ‘this is just my opinion, others will disagree’, you can check that if you’d rather inform yourself before getting snippy with people you don’t know over nothing.

I could equally say that in recent times on here there are too many people who are oversensitive or quick to be grumpy with other posters, and that I find that a shame.

Anyway, I’m happy for others to judge whether I am taking charge or offering an opinion but please, there’s no need to be so aggressive about it. I’m genuinely sorry if you found my post arrogant or offensive, for neither was my intention.

ST

9

Big thanks for all the replies!

I wasn’t aware of the rollover cost and this was exactly the kind of information I wanted. What is the rollover cost? The broker I’ve looked up claims the only fees are the pip difference between buy and sell and this was the reason I thought a Forex trade could be optimal for a longer term position together with the fact that you won’t be affected by variance as in some other trading vehicles.

10

Simon, perhaps it is a bit strong, and you will find another one strong as well than. I am sorry about that. It is too long to explain. And I think it is wise not to elaborate about it. Well, just this.

I apologize…

11

It comes down to leverage and overall exposure:

If you are position trading, holding a trade for 3 months or longer, you can greatly simplify your trading. Get a firm grasp of fundamentals, determine which currency(s) has the advantageous, long term relative movement you seek and enter. That’s it.

You don’t have to worry about precise entries (you don’t have to worry about entries at all – just enter) and, if trading without leverage, you don’t even have to worry too much about stop placement – just enter a stop somewhere far enough away from the action to cover a black swan type event. The only way you will lose all of your money is if the currency you are trading disappears.

As far as adding to the positions, absolutely! If price continues to move in your direction and fundamentals favor a continued movement in that direction then you have the opportunity to build larger and larger positions over time.

Not everything, however, is easy when it comes to position trading. First, you have to have a firm grasp of fundamentals. Technical analysis trading can be confusing. Fundamental trading is an absolute morass of “interconnectedness” among all currencies, markets and events.

Leverage kills in position trading. Kills. Murders. Destroys. Using anything but the lowest leverage (if you use it at all) is an act of account homocide.

Using little to no leverage in forex is rather silly unless you have giant stacks of money you want to park somewhere until you can find something more profitable to do with it. The relative fluctuations in price among currencies is actually quite small. That is why such high leverage is available in this market to begin with. It allows one to amplify those very small movements into something worthwhile.

There is nothing wrong with position trading. It can be moderately profitable. It is not discussed much on forums because it is BORING. You enter a trade and that is it. See you next quarter. Forex is also not the most profitable market for trading when the position is “invested” for extended periods of time on zero to low leverage. There are better markets for that.

If you are interested in pure swing trading – then you are just trading primarily off the daily charts and holding for several days to weeks. You are also, no doubt, using much higher leverage than you would be if you were position trading. The relative movement of a currency over a few days is miniscule in real terms. The amplification of those movements through leverage is what makes trading forex appealing so the shorter the timeframe, the larger the leverage needed to see any actual, meaningful profits.

Adding to positions in a trade of such short duration, using leverage, simply adds to increasing the risk of an otherwise profitable position. The analysis you performed told you there was a good trading opportunity, you did a proper risk management assessment and entered the trade. If it continues to move in your favor, enjoy the rewards. Why put those gains in jeopardy? When you eventually close the position then you can put those gains to use in your next trade to increase your future position sizes.

You can keep adding to those positions as they become profitable and as you continue moving your stops forward to lock in additional gains but you’re taking additional trades on an ever-depleting capital basis. You can keep adding to positions long as you have money to add but those gains are never realized and put to use compounding until you actually close the positions out. Basically, your total exposure continues to increase.

1 Like
12

Then respect to you for that, and apology absolutely accepted. I am also sorry if my post came across as critical or arrogant - neither was my intention, it’s just sometimes difficult on the internet to see how things might come across. So I apologize, too, and let’s say no more about it.

ST

(And lol yes, I got an email alert giving me the other post on the other thread - we all get grumpy occasionally and blurt things out, it is absolutely fine and apologies if I came across poorly over there, too!)

13

Thank you JohnLeonard for that lengthy reply.
I’m not new to the markets. I’ve been following various markets on a daily baiss for several years. Also I’m not new to neither technical analysis nor fundamental analysis. I’m entirely new to Forex trading though. My thoughts are that I want to go long X since I believe in both the fundamentals and the technical signals on a time scale of a few months. I want to invest a sum using leverage but still having a large % of my equity free in my broker account in order to have flexibility in case the trade doesn’t turn my way right away and adding if it goes the right way.

So I guess my trade would be a positional trade more than a swing trade. Why do you say leverage is homicide in positional trading?

14

I had fun writing that one…:wink: Apologies not needed, I was just trying to respond in a similar manner…:slight_smile: I am a bit cheacky, that is my personality…:slight_smile:

15

First, let’s assume that you are willing to risk $100,000 on one position.

The more leverage you use the tighter the stop that must be employed must be to prevent blowing an account. As an example, let’s say you are trading a single position of 1 standard lot ($100,000) using 1:1 leverage. If the market/your position declines in value by only 2% to $98,000 you still have an account. In other words, 98% of your account is left in tact.

If the same amount of money from your account were used with 50:1 leverage, that same 2% market decline would equal 100% of your entire account. In other words, 0% of your account is left – and there was only the same 2% decline.

The movement of price on an intraday basis calculated as a percentage is hardly noticable. It can become very noticable over a period of months. Short term trading generally employs very tight stops (10-30 pip stops are commonplace on intraday trades, for example). The stops used on long term positions trades lasting months must be hundreds upon hundreds of pips just to account for market noise.

I was used to trading other markets as well (stocks, mainly) before making the leap to forex. The effects of massive leverage, which amplify results (good and bad), become even more amplified on longer term trades – it is a bit difficult to wrap one’s head around at first when coming from other markets where 4:1 is usually the max, if it is available at all (it was for me, anyway).

If trading 1 standard lot and one pip equals $10, for instance, the $300 decline with a 30 pip stop doesn’t mean much. The $15,000 decline that would be incurred on high leverage with the same 30 pip stop becomes significant. Now stretch it out to a 300 pip stop on a position trade and you triggered a margin call before your stop was even hit.

I realize I am using large numbers but that is only because it easier to do the math. Knock off as many zeros as necessary to put it all on a more realistic scale (unless you are entering the forex markets with $100K to blow:53:).

Hoped some of this helped!

1 Like
16

RAJS

Take a quick look at this thread, 301 Moved Permanently it’s a good example of someone that position trades, holding trades for longer periods of time.

Might be hard to find but some where buried in his thread Cyco does address a question regarding roll-over fees.

17

Just to be clear, depending on the pair you trade and the direction your position is, you could either pay or receive carry/rollover each day, and to a greater or lesser degree. Definitely something for the longer-term trader to keep in mind. It’s all good when you’re trading long AUD/JPY and raking in the carry, but not so fun if you’re short that pair and paying it out. :slight_smile:

18

Thanks for the Thread!

19

RAJS - not sure where you are based, but if it is in the UK, then you have a few options available if you PLAN to hold a trade long term, which is what I do. I typically hold a trade for anything from 2 weeks to 3 months (or when my stop gets hit or if I abandon my trade) and buy into quarterly future contracts with Capital Spreads. The spread for Gbp/usd is 8 pips instead of the fixed 2 pips but there are no overnight rollover fees …

20

If you have confident in your self and you are technically right and flowing in green pips then you can hold your position to gain more profit but if your in red pips and holding your position then it is stupid closed your position as there is little chances for the trade to go in your favour now.