DailyFX Tips & Picks: Short-term and long-term trading: The pros and cons

ONE great thing about the FX market is choice. You can trade a multitude of time-frames, with short-term trading the most popular. In fact, the average trader trades three times per day.

Short-term trading can be anything from “scalping” to “intraday” trading. Scalping means entering and exiting a trade over a very short period, usually looking to profit on one fifth of the daily average range. Intraday traders may hold a position for longer, but will close their position before the end of the trading session. People like short-term trading, as often we see one or two price trends that only last for the session. This generates more trading opportunities, hence higher potential returns. Yet with higher potential returns, the risk also rises.

To combat this, some prefer longer-term trading – perhaps having a trade open for up to a few months. This requires more patience but the rewards may be handsome, especially if you’re fortunate to catch a massive move. The 2,000 pip move on sterling-dollar from September 2013 is a perfect example.

There are pros and cons to both. Over the short term, a trader may make super-normal gains with a small level of capital. But it’s easy to give those gains up. Long-term traders, meanwhile, may need a respectable level of capital to make long-term gains worthwhile.

Rationally, short-term trading is more interesting, given the potential reward. Yet what is mathematically possible is seldom feasible, with mental toughness being the prime determinate of how successful a trader is. It’s vital to find the balance and trade in line with your personality.

Are you better suited for long-term or short-term trading? Find out with the DailyFX Survey – http://bit.ly/FXSurvey

Alejandro Zambrano is a currency analyst at DailyFX. Azambrano@dailyfx.com @AlexFX00