With so many different trading strategies and ways to bear fruit in the financial market, the greatest financial return for the majority of investors comes with medium-term trading strategies. While scalpers try to open positions on the spur of the moment and sometimes even on impulse, long-term trading may require months or years to close a particular deal.
This is where medium-term trading appears to be the "golden mean", so to speak. The strategy considers participating in daily and weekly moves that are less time-consuming if compared to long-term tactics and more profitable than scalping.
Of course, medium-term Forex trading is not the Wholly Grail that guarantees to win each and every deal. Besides, trend moves may take some time and perform not as often as we want them to perform. Also, the strategy comes with a certain risk. Nevertheless, it still delivers potentially strong trading conditions as well as plenty of room on the stop loss.
What is so special about medium-term Forex trading? Why is it considered one of the best strategies for both beginners and experienced pros? What crucial issues are to consider when opting for this particular approach?
What Medium-Trading Is and How It Works
The term speaks for itself. Medium trading means holding a position for a medium period. It may range from a few days to several weeks. What makes this strategy so special is that it requires less initial capital to trade if compared with short and long-term approaches. This is why medium trading is considered as the best option for newbies.
The main downside here is that such tactics ensure fewer trading opportunities. Besides, a trader is supposed to have a solid technical background as well as the ability to conduct in-depth market research and analysis. Learning some baseline aspects of Technical Analysis can be enough but only for a start.
How It Works
The concept is pretty simple. A trader needs to monitor trends within several timeframes. Additionally, you have to use a variety of financial indicators to compare and contrast the movement over a specific period.
In this image you can see where Support and Resistance levels are.
This is where moving average or stochastic may come in handy. Moreover, here are some other Forex indicators that you might need:
- Support and Resistance Levels;
- Trend Lines;
- Fibonacci Retracement and Extensions;
- Pivot Points and Candlesticks.
Your ability to analyze those charts and indicators will eventually define the ability to generate profitable trend ideas.
Medium-Trading Example: let's say, you identify the inverse head and shoulder pattern with the help of the hourly chart. At the same time, stochastics moves upwards to make the crossover in the area with an overselling environment. What would you do? A good idea is to enter the market with an order placed above the neckline resistance.
As a rule, medium traders place exit points at key levels as well as around psychological and support and resistance levels. Above all, you also need to follow the latest economic news and reports, as vital tools to modify and customize your current trading tactics.
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Medium Term Trading Pros and Cons
As we have stated earlier, this particular strategy does not guarantee profits. Besides, it calls for in-depth knowledge of Forex indicators and charts. And if you are able to master them, you will benefit from:
- Flexibility – the strategy suits a wider range of traders.
- Predictability – asset trends from the portfolio can determine further performance.
- Stress-Free – medium-term strategies usually come with reduced stress if compared to scalping, for instance.
As for the most popular strategy cons, they are as follows:
- In-Depth Analysis required. You will have to use more instruments than with short-term trading.
- Macro and Microeconomics Impact to consider.
Medium-Trading Strategy Tips
If you decide to stick to the medium-term concept, you are supposed to hold positions from one day to several weeks. Make sure you conduct deeper analysis if compared to short term trading. You will need to examine the trend's anticipated and historical performance. It will require following some baseline steps.
Step 1 – Collect the Data
It all starts with gathering as much information about the trend as you can. The stage can be divided into three main phases:
- Performance Info - Let's say you trade stocks. So, be prepared to learn as much about the company as possible. Examine everything you can from revenue and sales reports to debts, the company's own predictions, and plans for the future.
- Historical Movements - Look for prior company's prior reports, dividends, etc. Compare those figures with earlier reports to observe the trend movement.
- Prediction - Consider the company's news and predictions. Find out what the expectations for the future are. What are the market risks? The idea is to make yourself feel confident about the asset.
Step 2 – Tie the Collected Data Together
Now you need to put all facts together. Make sure you have compared the asset performance at least over the last 12 months. Keep an eye on the most recent trading data and compare it with the previous period. Stay tuned with the industry or company's key upcoming events.
Step 3 – Build a Roadmap
This is where you can make the most of historical price charts. The idea is to create an asset roadmap that covers 12 months of its performance based on the data you managed to generate and process at the first two steps.
Example: let's say a company has published the official report in June. You need to consider it and check how the price changed after it was revealed.
Step 4 – Consider Various Scenarios
The next stage is to observe the roadmap and try to predict various scenarios. If not doing this, a trader is unable to respond quickly to the market changes. To understand, how the trend can move in the future, ask yourself:
- What is the possible outcome if not considering news or events?
- What expectations are priced into the outcome of the asset?
- Are there potential unexpected issues to occur?
The idea is to be mentally prepared for any price move even despite your predictions.
Step 5 – Technical Analysis
Technical Analysis is never enough when it comes to medium-term trading. Get ready to process piles of charts, reports, analytics, etc. Your mission is to find the most appropriate entry and exit points. Read more about technical analysis in our article.
Although medium-term trading is considered as very risky, it is still one of the most effective approaches. What 's more, it suits a wider range of traders including both amateurs and pros. The concept delivers more flexibility in terms of timing though it calls for deeper analytics, examination, and research.
Once you are ready to enter the real financial market, open the LIVE account, and start your successful trading.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.