Best strategy for long term trading
Traders and investors come to the financial markets wanting to make money. So the main goal is profit. But in order to make it, you need a plan, an algorithm for action.
A clear investment strategy is the key to consistent investor action. If it is not prescribed in advance, stock market transactions will become chaotic and will not bring the desired results, and in the worst case lead to loss of capital. There are plenty of trading strategies. Everyone has to choose one suitable to oneself, to one's character, preferences in trading speed, time expenditures and so on.
Today, we will introduce you to the best long term trading strategies that you can apply on a professional trading platform in Nigeria.
What is a trading strategy?
A trading strategy is a set of rules that allows you to systematize trading, give a trader a clear idea of when to enter a trade, when to exit it, and when it is better to refrain from trading altogether.
Basically, it is a precise plan of action in different situations. It describes different scenarios in the market and trader's actions when any of them comes. And the success of a trader depends on a well-balanced system.
The point of a trading strategy is to define the instruments which an investor will invest money in and the time period during which he will not withdraw the money back.
Following strict rules of trading strategy makes a trader a professional and allows earning stable money on financial markets. In addition, a strategy allows you to track and correct mistakes. Doing deals by the same rules, an investor can see the weaknesses of his trading system and adjust his approach to work on an online exchange.
A well-designed trading strategy allows achieving positive expectations and profit in conditions of constant market uncertainty. Moreover, a proper trading strategy enables you to profit even in case of more negative trades.
There are various trading strategies, styles and methods of trading available on financial markets.
The thing is that every trader sees the market differently. To this, one should add personality traits such as temperament and emotional stability. That is why one and the same strategy can bring profit to one trader and loss to another one.
Types of trading strategies
The very first step in creating your trading strategy is to determine the time frame in which you will work. This will largely determine your trading style, as well as the time and effort you will have to put in.
Short Term Strategy
The short-term strategy is the most profitable, but also the most risky way to make a profit. After all, trading within a daily timeframe is quite difficult in terms of predicting price movements. Short-term investors buy assets for short-term holding, selling the traded instrument when its price rises. Short-term trading strategies require near constant presence in front of the trading terminal window due to the need of continuous monitoring of the market situation, as well as ability of a trader to react instantly to the changes on the market and make prompt, error-free decisions.
Advantages of short-term trading include:
- Active intraday movements. On small timeframes, the price can move a lot, thereby giving the trader the opportunity to trade every day.
- Quick experience gain. As opportunities present themselves every day, the trader can quickly gain trading experience and test the effectiveness of the trading system.
- High profit potential. Due to the high intraday volatility, short-term trading has a high profit potential. Profits can be made both on descending and ascending intraday movements.
- Small deposit. Which may be attractive for beginning traders.
Long term strategy
Long term trading strategy works on long-term, from several days to several years, timeframes. This is sometimes referred to as position trading.
A trade is executed, the trader places orders: to make profit and to limit losses. Then as time passes (a month or more) the trader will have to check whether the order limiting losses or profit order worked. The outcome will either be an impressive profit or an insignificant loss, which depends on the stop-loss order placed.
Strategy long term trading, with a sufficiently large deposit implies quiet daily work on the trading platforms and obtaining a significant profit from one or two orders. One open large order is more preferable than a hundred small ones. If you are extremely busy at work or have your own business, then trading strategies of this type can be a great solution. For instance, you might be trading as a way to grow or protect your capital from inflation or other negative factors. In this case, you have plenty of time.
- Suitable for busy people. A few minutes a week or a month should be set aside for trading.
- A well-diversified portfolio. In long-term trading, you can build a portfolio that trades at low risk.
- You will provide yourself with a stable income in the future, and your investment can pay off several times over.
Forecasting methods used in strategies
- Fundamental analysis
Fundamental analysis looks at and analyses economic data, which has a strong influence on prices. The main purpose of fundamental analysis is to determine the real value of an asset and whether it is worth investing in. The main task for a trader is to determine the most promising assets. Fundamental analysis is not used to predict the behaviour of an asset in the next hour or, for example, to find an entry point at a support/resistance level, it has another purpose. It collects real data and indicators not only internally but also externally. It gives an indication of whether the current rising trend has an upside potential.
- Technical analysis
Trading strategies based on technical analysis are built upon price forecasting by identifying market patterns. It makes use of graphical drawings (support and resistance levels, pivot and technical levels), TA patterns and candlestick patterns, as well as technical indicators. In most cases these strategies have clear rules for opening trades, setting stop-loss and take-profit orders. Making a profit here comes down to following these rules.
For a trading long term strategy to bring maximum profit and trade with minimum risk, it is necessary to pay attention to two main parameters - the liquidity and the volatility of the asset.
Volatility is the most important factor in the financial markets. It is the basis of price movement and therefore an opportunity for profit. Without volatility, the price would not change its direction at all and there would be no fluctuations in the financial markets, which give you the opportunity to trade or earn income from investments. There are also many advantages to having liquidity in the financial markets. Liquidity in trading is the property of an instrument to be sold or bought quickly. The more liquid an instrument is, the easier it is to buy/sell it. It is also worth remembering that the liquidity of financial instruments is the most important factor for quickly converting one's investment into cash in the event of an unsuccessful investment.
Markets for long-term trading in Nigeria
Online investing gives thousands of people in Nigeria the chance to make a career in stock trading. Being able to access any of the world's markets from your own computer opens up unique opportunities.
On the online trading platform, you can apply the best long term trading strategy on the following markets.
Investing in the international forex market is the most potentially lucrative.
If a trader has enough time, has a large initial capital and believes that investing in currencies is above all a diversification of your investment portfolio, he will surely be interested in choosing the best strategy for long term trading.
In this way you can preserve and multiply your savings by increasing the value of your currency. The bottom line here is simple, traders do not use the market for speculative purposes, they simply exchange currencies and make money on the difference over the long term.
Any investor who decides to buy stocks for long-term trading is faced with the question of what criteria they should use when choosing them and what they should pay attention to first.
One of the most effective ways is to look for undervalued companies, especially in a rising market. The development of new technology has made finding these stocks much easier - there are now a number of algorithms in the market which calculate ratios for companies based on which undervalued stocks are selected, so if you manage to find them first, you won't have to wait long for results.
Promising issuers also include young companies that are just starting out in the market. The technology and biotechnology sectors have been the most prominent of late. The promise of a company and its stock increases dramatically when new products or products with advanced or unique properties are introduced to the market.
Like stocks, commodities are an asset class used in investments.
The most common types of commodities are oil, natural gas, agricultural commodities such as coffee, cotton or wheat, etc. Here prices are influenced by the basic interaction of supply and demand, economic growth, consumer and production trends.
In addition, commodities cannot go bankrupt like companies, and having a portion of your portfolio made up of commodities allows you to hedge against sharp declines in the stock market. Commodities, such as physical bullion gold, may be owned directly by the investor, or the trader may use securities, mutual funds, ETFs or futures contracts to trade.
Index investing is a popular method of classical passive investing, which is the easiest to understand for most investors.
The main idea of index investing is to make the process of investing in securities as simple as possible for the investor.
The long term trading strategy of index investing implies that an investor in his portfolio completely replicates the structure of a particular index by investing in the assets that make up the index. In this case, an investor automatically has no need to select and select shares, allocate them by shares and form an investment portfolio. The task is reduced to the simplest possible process - choose an interesting index and duplicate it.
The best long term trading strategy
One of the most important qualities of any, even the most simple, long term trading strategy is the sustainability and stability of the results.
One of the most important qualities of a simple long term trading strategy is the stability of the results.
Every trader chooses his own strategy, which means you need to be aware of your individuality.
What might work very well for one trader might be totally unsuitable for you. Conversely, a trading strategy that has been underestimated by others might be suitable.
When choosing the best strategy for long term trading, it is important to understand the most important thing - the system should be very clear and adaptable for you.
Let's take a closer look at some popular strategies and see how they work.
Trading with the trend can provide many profitable opportunities.
A 'trend' is when price moves in one direction up or down over a period of time. Thus, trend following is simply following the direction of price.
Trend trading can help traders profit by analyzing the value of an asset as it rises or falls. Trend traders enter into a long position when an asset is trending upwards (its highs are consistently rising) or open a short position when a security is falling (its highs are consistently falling).
Moving averages of different lengths have long been used as trend-following indicators. Short-term moving averages can also be used, because they follow the price of the trend more closely. But sometimes, the trend is a long-term market direction, and a short-term moving average is not suitable.
An extremely popular approach to identifying an uptrend is a price chart on a market chart, which shows higher highs and higher lows. Similarly, conversely, a downtrend is defined by a price pattern which shows lower highs and lower lows.
The trend following strategy is a great choice for any market participant. Many traders use it when managing their own portfolios.
Carry Trade is a very interesting, unusual and specific strategy in the financial market. It is characterized by low risk and can yield a stable income for a long period of time. The best thing about this strategy is that you can make profit for years and use it only once a day. Carry trade involves purchasing the national currency of a country with a low interest rate and then investing that money in a currency with a high interest rate. To understand how to use carry trade in your trading, it is necessary to understand the concept of swap.
When an open order is carried over to the next trading day, the open positions are automatically recalculated, and this is known as a swap.
Usually the trader loses some profit in this case, but if the rate of the purchased currency is higher than that of the sold currency, the bank pays the trader a certain percentage (positive swap).
The bigger is the difference in the discount rate of the pairing currencies, the bigger is the profit made, and it is this swap that forms the basis of the carry trade.
Buying and holding
Virtually all experienced investors agree that for long-term investments, there is one simple strategy that should be used - the well-known "buy and hold" strategy.
This is a strategy whereby an investor buys stocks (or other types of securities such as ETFs) and holds them for an extended period of time, regardless of market fluctuations. An investor who uses a buy-and-hold strategy can actively select investments but does not care about short-term price movements and technical indicators. It is known that the stock market always rises in the long run. This means that even after significant drawdowns during crises, it will once again make new highs.
Trading on a pullback
Rollback trading is a type of trading where the main purpose is to find an entry point into the market when the trend is moving, but at the best possible price. It appears due to the fact that the price moves up and down in a large directional trend.
It is worth noting that trading on a pullback is one of the safest trading areas with a proper approach to capital management, because the risk-to-reward ratio is almost always on the trader's side.
Likewise, it should be understood that pullbacks can be either in an uptrend or in a downtrend. In a downtrend, the pullback represents an upward price movement, while in an uptrend, the pullback represents a brief downward price movement. You need to understand that finding a pullback is directly related to how you know how to identify a trend, and what tools you use to do so.
The most popular ones are the most common trend lines and parallel channels. Technical indicators often include moving averages and instruments based on them.
This trading strategy long term is based on technical analysis. Support and resistance are its two main elements. It is a strategy for stocks, commodity futures, indices and others when the price moves out of a trading range bounded by clear support and resistance levels.
In a breakout trade, a trader opens a long position after the price breaks through a resistance level, or a short position when the price breaks through a support level.
This strategy can provide good trading opportunities. The reason for this is that breakouts often lead to new price movements and trends.
Thus, traders can enter a potential incipient trend at its very beginning.
How to apply a long term trading strategy in Nigeria?
If you have found the best system for yourself, then before you work with it in real trading, you need to test its performance and evaluate how accurately it gives signals, what kind of results it leads to, etc. You can easily do this on a professional trading platform. All you need to do is go through a simple registration. You can install an app on your smartphone if you want, and then track your investments wherever you are.
Try out your strategy on a demo account, which will be available to you as soon as you sign up. The advantages of a demo account provided by the terminal is a full simulation of the real market conditions, using all the tools available for real account members.
Without investing your own money, you can easily test the profitability of a strategy on a demo account. Testing of strategies is absolutely free, which is convenient and accessible for any beginner trader.
If everything goes according to plan, and your system 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 interactive platform, you will be able to open a trade immediately.
You can try and consider several strategies and later choose only one, which suits you psychologically.
Take your time and study all the options you are interested in. We wish you good luck!