The Difficulty With Short-Term Forex Trading Strategies

chart analysis

Trading in short time periods, typically within a trading day means volatility for day traders is more unpredictable than the effect of volatility over the longer term for position traders.

Support and resistance levels in short term charts are less reliable to use than long term technical indicators. It is challenging to try and trade from hourly charts or even shorter time frames.

If your forex trading strategy does rely on using a system to trade the short term, it necessitates having a tight stop loss. It allows you to get in and out of trades up to several times a day if you are scalping the market.

Scalping using leverage and a strategy with a narrow edge to make money from the market does not leave much margin for error.

Without a tight stop-loss and disciplined money management trading 1% to 2% of your trading capital account, then short term strategies can cause significant losses. A tight stop-loss may be as low as ten pips from the current underlying market

The Effect of Macro-Events on Short Term Trading

The problem with short term trading lies in an unexpected macro-event or news that moves the market more than your hourly chart or technical analysis on a given day.

If there is a catastrophe or an unexpectedly lousy piece of economic data that comes out, the currency pair you are trading could quickly move more than one big figure. Without a tight stop-loss and a disciplined strategy, your forex trading losses would rapidly get out of control.

An excellent video explaining the benefits of long-term over short-term forex trading

If You Can, Trade for The Long Term

Many forex traders cannot trade for the long term to become position traders. The reason is day traders need to make money every day to earn a living by scalping the market. A couple of pips here and there only creates a decent trading profit through frequent trading many times a day.

Taking a longer-term strategic position will require a deeper stop loss and trading with a higher percentage of your capital account. A larger transaction size justifies inactivity in the market by holding out for more significant currency moves.

A long-term trading strategy means that you are not affected by what happens on any one given day. You can forget about having to predict short term trends and you will have more chance making money forex trading.

A Parting Thought

The forex markets are a market of probabilities and not certainties. Trading long term forex trends make big profits; if you have the means forget about trading the short term where unpredictable or unforeseen events will always mean that the odds are on a knife edge.