What are long-term Forex trading strategies and how to implement them?

What are long-term Forex trading strategies and how to implement them?

Over the years, Forex trading has evolved a lot, and there are several ways investors can make money from trading currencies, depending on the trader’s aim, available time, and expectations.

Whether a trader focuses on short-term or long-term gains, there are different strategies for different goals. Long-term traders focus on the bigger picture. They enter the market and leave only after an extended period of time - it can be weeks, months, or even a year.

Some traders consider long-term Forex trading interesting because some currencies have been around for quite a long time, and had historical market fluctuations that affected nations.

"If most traders would learn to sit on their hands 50 percent of the time, they would make a lot more money. I don’t think you can consistently be a winning trader if you’re banking on being right more than 50 percent of the time. You have to figure out how to make money being right only 20 to 30 percent of the time." - Bill Lipschutz

In the following, we will be looking at key long-term Forex trading strategies, and why you need to account for the following steps:

  • Understanding why long-term Forex trading can be useful
  • How to start long-term trading in Forex
  • The best indicators to use with position trading
  • Selecting the right currency pair for long-term trading


Long Term Forex Trading

This type of trading entails holding a market position for a relatively long period of time, depending on the security, it can be for several weeks or months. Traders who use this trading strategy focus on the bigger picture and ignore the small price movements that happen every now and then.

Some securities are better traded in the long term due to low volatility. Assets with low volatility do not provide significant gains in the short term. Therefore, traders tend to open market positions on these types of securities and hold them for a long time period in order to see bigger changes in their investments.

A great example of a buy-and-hold strategy in Forex is the GBP/USD pair. If a trader opened a market position on the 30th of June 2020, the market volatility on that day was only around 1%, which did not provide promising gains for the trader.

However, if the trader held that same position for 2 months, they would have seen a 7% return on investment, and a 15% gain on investment if the market position was still open 1 year later.

Taking the same example in numbers, if a trader invested $1,000 in one day they might receive $10 for intraday fluctuations. However, if the same position was active for 1 year, the trader would see a $150 increase in their investment.

Long term vs Short term


Unlike short-term traders, trading currencies long-term does not require the permanent attention of the trader, they can just enter the market and check back whenever they want after a long time.

This way, traders do not need to stress and keep their eyes glued to the trading screens to catch the intraday trend and fluctuations. This type of trading is designed for those who do not have time to check their investment several times on the same day.

For example, Forex scalping requires investors to execute market orders every 15, 5, or even 1 minute, which definitely needs uninterrupted attention by the trader. 

Similarly, swing traders who need to follow the trend before they enter/leave the market, spend a lot of time analyzing the trend movement and the projected direction.

Thus, the long-term Forex trading strategy is used by traders who are working during the day or basically are not free during the daytime.

How Do You Trade Forex Long Term?

Some might think that this is a simple strategy, you choose any financial instrument to open a market position, and then close it later on. While that is theoretically correct, there are several implications that a trader needs to be aware of, such as:

  • Using the right leverage
  • The rollover/swap charges
  • Economical considerations
  • Political considerations

So, to get started with long-term Forex trading, you need to find a reliable broker, for instance, XM Broker, which enables you to choose between more than 55 currency pairs. To start trading you need to sign up by following these steps:

  • Click on the green box at the top of their homepage that says “Open an account”
  • Fill in the form with your personal information
  • Choose the trading platform and the account type you want, and click proceed
  • On the next page, answer some questions about your trading experience and expectations
  • Choose your password, and click “open a real account”

Using leverage

Using leverage can be a double-edged sword, it can help the trader open a higher-value market position, which might help the trader amplify gains if the trade goes successfully.

However, this exposure can hurt the trader’s balance if the trade goes in an unfavorable direction. You might end up losing your investment and have to pay back the broker for the money that was borrowed for the leverage.

Therefore, to have a successful long-term Forex strategy, a trader needs to use a moderate to a small amount of leverage, because some markets can be highly volatile and might wipe out your market position in seconds.

When a currency pair is volatile, it can have huge intraday or intraweek fluctuations, which does not affect the position in the long term, but in the short term, if it reaches the bottom limit, it can trigger a stop-loss order.

When the stop-loss limit is reached and ordered, the market position will be closed and sold back to the market, causing the trader to lose some of the capital they have invested.

Therefore, it would be better not to use leverage, or in most cases, 1:10 leverage can be used which may not largely hurt the trader’s balance.

Avoiding/minimizing the rollover charges


Long-term Forex trading means that the market position needs to be open for a long time. When a market position remains active until the next day, there is a rollover interest rate that is incurred, which is paid either by the trader or by the broker.

The rollover charge is dependent on the national interest rate of the currency pairs in question. Let’s say you are considering trading the pair AUD/JPY, and say that the interest rate in the national bank of Australia is 4%, while the interest rate in the bank of Japan is 1%.

If you buy AUD and sell the JPY (long AUD) you are going to receive the rollover charges because the interest rate of the national bank of Australia is higher than the bank of Japan.

On the other hand, if you decide to sell the AUD and buy the JPY (short the AUD) you are going to be charged the swap interest rate. 

The amount you are going to pay or receive is calculated by the broker, and you need to check with your broker before you start considering these charges.

With that being said, swap charges can be as small as $5 for a one-day rollover, which is not going to break the trader’s capital, however, since we are talking about Forex trading in the long term, a trader might come back to the account after three months to see a swap charge of $450 which is quite significant.

So, the way out is to do research on financial brokers - you need to find a broker that charges the least possible swap interest rate or carefully select the currency pairs you are trading with. It would be better to find a currency pair that pays you a rollover interest rate.

Economic considerations


The economic indicators in a currency’s homeland are very crucial. To have an effective long-term Forex trading strategy a trader needs to read and analyze the economy’s internal factors.

These factors affect the currency’s volatility in the market, the value of the currency against other currencies in the Forex market, and the currency’s liquidity or how easily someone can trade using that currency.

The inflation rate is one of the most important indicators of the currency’s potential. If a country is witnessing an increasing inflation rate, it might indicate the potential for currency devaluation. Though not all inflation is bad. An inflation rate of up to 2% can sometimes be considered good. 

The interest rate is another indicator of the currency’s value. When the interest rate is low, it becomes cheaper to borrow, which motivates domestic and foreign investors to take loans, increasing the demand for the local currency, and eventually increasing the value of the local currency.

However, it is more important to analyze how quickly the interest rate changes. Changing the interest rate on a more regular basis demotivates the investors because they need time to understand the projected movement of the currency and the economy in general.

When traders decide which Forex pair is best for trading, they usually go for currencies where the banks have more or less stable interest rates.

Political considerations


Politics have an influence on Forex trading and currency value. In some cases, it can lead investors to totally abandon a certain currency.

For example, sanctions have a huge impact on the country’s economy, and therefore on the exchange rate. 

When a country is left without any trading partners, it cannot export whatever they produce, so the country does not exchange any money received in any currency, which leads to the depreciation of the local currency.

On the other hand, when the country cannot import as well, it means that it cannot increase national expenditures to develop its infrastructure, which means that new jobs are no longer created, and unemployment increases. 

In a response to all these events, some governments might start printing more money to stimulate the economy, which triggers inflation.

All that affects the value of the currency as there is less demand for it, and therefore it depreciates against most or all other currencies in the Forex market.

In addition, a trader who wants to trade Forex in the long-term needs to consider the long-term changes in the country. Events like elections, trade agreements, social life, and people’s well-being can have long-term changes in the exchange rate.

Best Indicators to Use for Long-term Forex Trading

Regardless of the trading platform that you are using for long-term trading, there are some indicators that are used for technical analysis to give traders in-depth research about the market.

These indicators can be used in conjunction with each other, to derive more accurate readings, such as the following:

200-day moving average

This indicator is common for Forex's long-term trading strategy as it uses historical price movements to give a projection of the upcoming market trend.

The 200-day moving average reads the market closing prices over the last 200 days, it draws a line for the average closing price. This way, when the current price is above the simple moving average (SMA) line, it indicates an upward trend. On the contrary, when the market price is below the 200-SMA it means that a downward trend is projected.

This indicator does not tell you at what price point the trader should buy or sell a market position. Rather, it helps the trader know how to find long-term trends in Forex trading, by estimating the upcoming market trend based on previous market trends.

Traders need to find currency pairs where the price is moving above the SMA line, in order to enter the market when the trend is upwards.

Some traders mix this indicator with the 50-day moving average indicator, to have a view from both sides, the shorter and the longer-term, and when the SMA lines of two indicators cross each other, it indicates maneuvering points.

Support and resistance indicators

These two indicators work together, and they help the trader identify when to enter or exit the market. The support limit is a line that lies below the market price, and when the trend enters the support line it means that the market trend is expected to change direction from this point.

The resistance line is located above the market price - when the market trend enters the resistance line it indicates that the market trend is expected to rebound towards the other side, and a downward trend may start.

The support and resistance indicators can be a big help for long-term Forex strategies because traders can see historical support and resistance points that can go back several months or even years.

For example, if a trader looks at the historical resistance points, they can see the maximum point that the market price has reached, which was never breached before, and it can indicate that the market price will start moving downwards from that point on.

Purchasing Power Parity (PPP) indicator

The PPP indicator focuses on comparing the currencies of two countries by comparing a basket of goods between them. It analyzes the exchange rate that equalizes the prices of a basket of goods and services between the countries.

It helps traders discover countries with low inflation rates. Foreign investors will be interested in investing in these locations, and when they take loans, the demand for the local currency will increase, taking the value of the currency up with it.

Hence, the local currency will have the potential to appreciate against other currencies, and traders will be able to choose which Forex pair is best for trading in the long term.

What Did We Learn From Forex’s Long-term Strategies?

  • Long-term Forex trading does not require constant attention by the investors, as they do not need to take any intraday actions
  • Trading Forex in the long term can be less stressful for traders, it can also be more beneficial with less volatile currency pairs
  • There are several considerations for a trader who wants to hold a market position in the long-term such as leverage, rollover charges, economic and political factors
  • There are several indicators that help the trader find the best currency pairs, or to identify the trend for different currency pairs, such as 200-day MA, support and resistance, and PPP indicator

FAQ on Long-term Forex Trading Strategies

What is a long-term Forex trading strategy?

Long-term trading, or position trading, implies opening a market position and keeping it for an extended period of time, then closing it after significant gains are made. The market position can be held for weeks, months, or even years. In long-term Forex trading, a trader focuses on the bigger picture and is not concerned with intraday fluctuations.

Can forex trading be done long-term?

Yes, it can. You need to find a reliable broker that offers Forex trading on its platform, sign up for a trading account, fund your account then start trading. There are some factors that you need to be aware of while trading in the long term. These include, how to use the correct leverage, rollover fees, and so on. It is also a good idea to minimize the rollover payments, and analyze the effects of the political and economic situation of a specific country. 

Is long-term Forex trading better?

It depends on the trader’s availability and strategy. It is usually practiced by traders who do not have time during the day to look after their investments. 

Long-term Forex trading is better for pairs with low volatility, these assets do not provide enough price fluctuations during the day, so it is better to keep the position open and focus on the long-term gains.