Long terme forex

Long-Term Forex Trading Strategies.

Many interested in trading currencies online opt for day trading, drawn by its excitement and profit potential. However, positional traders, also known as long-term Forex traders, are more likely to generate larger profits.

This article will explore long-term currency trading strategies, highlight best practices and review important considerations.

What is long-term Forex trading?

In two words – positional trading .

The idea behind this approach is making fewer transactions that produce larger individual gains. While traders harnessing this strategy usually aim to make at least 200 pips per trade, their opportunities are far more limited.

As a result, traders who use this approach require thorough preparation and substantial knowledge.

Long-term strategies for trading FX.

Positional trading exemplifies how to trade Forex long-term. It involves identifying a trend, then following it for weeks or months.

In some cases, traders have followed a trend for over a year. When applying long-term Forex trading, buy based on expectations and sell based on facts.

For example, speculators like George Soros heavily shorted the British pound in 1992. They were skeptical of the UK's ability to maintain fixed exchange rates at the time. The country pulled the pound from the ERM 22 September 1992 and Soros made more than £1 billion on the deal.

If you're seeking a more practical example of a long-term currency trading strategy, open a long position on the GBP/USD, based on your belief that the currency pair will push higher after the upcoming British election. Once you find out how the currency pair moves post-election, you can either close this position or keep it open.

Keep in mind that if you trade the GBP/USD, you should consider economic events not only in the UK but also in the US. Conduct thorough analysis on the economies of the two currencies and be sure to evaluate the potential for unforeseen events.

This information is all you need to develop a long-term Forex trading strategy, but hey – further education is always a good idea .

A long-term strategy example.

The previous section provided some general information on trading Forex long-term. Now let's look at a long-term strategy in greater detail.

Let's say you are a Forex trader based in the US and some political events have taken place that will likely impact USD. Using the information you have at your disposal, you should analyse where the USD will go.

If you think there is a good chance the currency will move in line with your forecast, you can begin your long-term Forex trading strategy by opening a USD pair position that reflects your prediction.

But before doing so, you should consider where the second currency will likely go. If you want to be conservative, pick a quote where you think the second currency will have the highest amount of stability.

For example, if the developments affecting your currency pair are tied to the Middle East, your analysis might reveal that Japan lacks tight trade agreements with countries in the region, and the Japanese yen (JPY) has historically enjoyed stability.

This information might lead you to think that the perfect pair for this trade would be the USD/JPY.

Once you figure this out, you should double-check your expectations, then list all known plus expected events and their outcomes. Covering all these variables is how you develop this and any other long-term currency trading strategy.

How to trade Forex long-term.

There are several tips that can enhance your FX trading.

For starters, don't let your emotions affect your trading because they can seriously undermine your performance. Turning losing trades into winning ones can be a challenge, but it can also be difficult to close a position out early and lose out on potential gains.

No matter what happens, stick to your strategy.

Every time you open a position, predict where the currency will go and how large the price movement will be. You must also ensure that every trade has both a profit target and a stop-loss.

Always have them figured out before you start using a long-term Forex strategy.

Long-term trading best practices.

While everyone has a different approach to trading, there are some general guidelines that apply to most positional traders. These guidelines are based primarily on risk management and the FX market's inherent nature.

Let's explore how they might enhance your trading strategies.

1. Use very small leverage.

When doing positional trading, you should stick to volumes that make up a small percentage of your margin. One of your major considerations for long-term currency trading is ensuring you can easily sustain any common intraday or even intra-week volatility.

Since a currency pair can easily move a few hundred pips in a day, you should make sure these price fluctuations won't trigger a stop-loss.

2. Pay attention to Swaps.

While trading Forex long-term can generate promising revenues, what really matters is profit.

Pay close attention to swaps – the fee charged for holding a position overnight. Swaps can sometimes be positive. But in many cases, they will be negative regardless of direction, so evaluating their expenses is crucial to making long-term Forex strategies profitable.

In some cases, you can use a strategy where the pip gain is small but the Swap is favourable for you.

3. Effort vs. return ratio.

Keep in mind that even with the best strategy, you may not reach your profit target. This could easily happen if you use too little leverage. If you only trade with a small amount of capital, you should expect proportionate returns.

Because of this, always consider the amount of time spent on trading compared to the monetary rewards received.

In most cases, you should use relatively large amounts of capital to make the effort vs. return ratio worthwhile. A great way to get a better sense of what return you will receive for your time without risking your capital is to open a demo account.

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Big Picture Forex Trading - A Long Term Strategy.

One method that I've always endorsed for forex trading is trading with the big picture. The big picture takes into account all of the information available for a currency pair.

This breaks down into several areas:

Interest Rate.

You can't ignore interest rates if you want to trade the bigger picture. When you hold a currency trade for more than a day, you'll notice something called rollover. Depending on the currencies involved and the direction of the trade, you may be paying a little bit of interest or earning a little bit of interest.

For the most part, if a country is paying sufficient interest, world traders are buying the currency against weaker currencies, creating a trend.

Fundamentals.

Tracking the progress of the commanding heights of the economy also known as the Fundamentals goes along with the above idea.

Fundamentals are things like employment, interest rates, CPI, and even politics. While trading the big picture, you need to know what the fundamentals are for the currencies involved.

Technicals.

Technical analysis has many methods when put into practice. If you say technical analysis to one trader, they make thing moving averages, while another market operator may think of MACD if you mention technical trading. When trading the big picture, you are looking for technical aspects to support your trade. If you want to buy a currency pair, you don't want it to be overbought technically. Your big picture trading should have some technical analysis that supports your decision.

It helps with the timing and helps you avoid getting in at a bad time. You may have the right idea overall, but having technical analysis in your favor can reduce your risk.

Like all forms of analysis, Technical Analysis is subject to misjudgments or biases, which can throw off appropriate investing decisions.

Weekly Charts.

One thing I love to do when I don't feel like I have a grasp on what is happening with a currency pair for a day is to step back and look at everything on the weekly charts. The bigger weekly charts can make a kneejerk move on the daily chart look trivial and give you a better feel for what you're analyzing. Take a step back helps to reduce second-guessing.

With these items in mind, you can make strong trading decisions that support positions that you're holding. You should never be making trades just to make them. You should be able to explain them to a third party if you had to. If you follow this rule, it will help you avoid making an "I'm bored" trade. Real trading, especially big picture trading, can be boring and slow. Many traders are brought in and told to trade fast and leveraged, and that is why there are so many failed forex traders.

Big picture trading is about taking everything into account and making an informed decision. In my opinion, it's one of the best trading methods. A branch of hedge funds, known as Global Macro funds takes this approach.

It's also one of the most difficult methods for traders to follow because it lacks excitement and fast payoff. Big picture trading is more about long-term success and staying in the game.

FOREX ROBOTS.

FOREX ROBOTS AND TRADING STRATEGIES.

Zamolxis Forex Robot.

Are forex robots the holy grail?. Should we use forex robots or should we trade manually? What strategies are the best? How do we determine which forex robot is the best and what are the best ways to use it? Under what conditions do they work? Why most commercial robots fail? Are backtests useless? I’m trying to answer these questions, but keep in mind that I’m not interested in short term high gains. I’m aiming long term consistent profits, between 3-10% every month. Quick profit involves a very high risk, this is one of forex golden rules. 30-40% per year is awesome considering the fact that the bank interest doesn’t exceed 2-5% per year the most.

Long story short: My robot, Zamolxis has made a 128% profit during one year and 6 months period. Which means,

3,000 pips, an account growth of 4.7% per month. This is near our target. We could have set a different target (higher profits), but high profits come with high risks and we can’t accept that as we’re aiming for long term profits.

Here, at longtermforex we treat forex as a business. And before we start a business, any business, we need to know when exactly will get back our main investment.

According to investopedia, “ The yield is the income return on an investment, such as the interest or dividends received from holding a particular security. The yield is usually expressed as an annual percentage rate based on the investment’s cost, current market value or face value. ”

For example, suppose we buy a nice house for $3,00,000 and rent it. At the end of the year, we get a nice $21,000 revenue, which gives us an yield of nearly 7% per year. After 14 years of renting, we finally recovered our main investment.

On the other side, forex is a more lucrative business (if treated as a business) because the yield is much higher. Zamolxis has an average yield of 35 – 60% per year , which comes with a risk of 20%. If you want to lower the risk to 2%, the profit is also reduced at 6%. This is comparable to the situation we described above.

For those of you who don’t have the money or time to buy a house and rent it, we propose Zamolxis.

But before diving into details, let’s see how it works.

What exactly a bayesian classifier does and how can this be applied to forex trading?

I have written a very comprehensive article about bayesian filters, everyone can understand it, please check it out here.

In machine learning, Bayes classifiers are a family of simple probabilistic classifiers based on applying Bayes theorem with strong independence assumptions between the features. For example, a winning trade is strongly correlated with certain factors like volatility, pivot points, the difference between previous high and low and so on. My initial approach was to gather as many inputs as I can coming for any forex robots I could find on the market (including the ones I myself created, please see the “My forex robots portfolio” section). The general assumption was that, no matter what strategy the robot uses, (trend, pullback, scalper, countertrend), a winning trade can be statistically identified. For example, trading around support and resistance points has a higher success probability compared to simply trading blind. If you add an extra filter, like volatility, the success probability increases. But the main problem is that the market is dynamic, the trading conditions always changes. Today is a good day for scalping, tomorrow might be a food day for trend followers, next week might be a great week for grid trading. We already know that optimizing the robot is not the answer because we are always one step behind the market.

Tu put it simply, a bayesian filter calculates the probability of success based on several factors like support and resistance points and if the probability is good enough, a trade is being opened. My forex robot, called Zamolxis is a mixture of bayesian filters and perceptrons (sometimes neural network classifiers work better under certain circumstances and this robot uses both).

I have spent an entire year trying to gather as much data as possible in order to feed the neural networks and bayesian filters. Then, I let them learn and classify the market conditions all by themselves, no optimization was performed. It survived in the wild without any optimization or tweaking. The purpose was merely survival and learning, without any kind of trade filtering whatsoever, not the profit. Now, the test is over and it’s time to see the results.

This time, the robot is fully trained and ready to make money.

You can see the results here (forexgermany. de live account).

How does Zamolxis work?

At first, it was a complete mystery to me why all forex robots fail in spite of such great backtests . The answer is simple: the market changes and it doesn’t always follow past conditions. You have to face many months and years of drawdown before you see the light at the end of the tunnel again. What is my solution to this problem? The approach is different. First of all, I don’t care about the drawdown anymore. The lot gets increased after 3 or more losses and the robot recovers fast, the only thing I care is to keep a lower losing streak, in my case, no more than 7 losses in a row.

This is not martingale, it’s position sizing.

The recovery function has nothing to do with martingale. Martingale involves opening multiple positions while doubling the lot size and keeping them open until the all are closed for a profit or the account gets blown. This is the fastest way to lose the account.

My recovery function doesn’t involve martingale, but position sizing, which is a very different thing. Zamolxis opens one position at a time.

No system is highly profitable on the long run unless it is using some sort of recovery function or position sizing! Zamolxis wins 51% of the trades considering the fact that take profit is always higher than stop loss. It is profitable even without any recovery function but the profit is low. Besides, nobody has the time to wait for years of drawdown, we already know that from our past adventures with forex robots. That’s why I created a realistic recovery function.

I have backtested the robot from 2009 to 2016, saved all winning settings, then backtested it against unseen data, from 2003 to 2009. If the losing streak and drawdown doesn’t change than I considered that setting to be a valid one and discarded the rest. If the losing streak gets higher than 6, the strategy gets invalidated by the market changes and the robot has to be retrained. Please note that this is not the holy grail, there is no such thing, it’s just a trading tool.

At the close of every bar, the market conditions are analyzed and classified with a bayesian filter and a neural network. If the feedback is similar, the robot opens a trade. Take profit is usually higher than stop loss, making the robot more reliable and trustworthy.

It runs on multiple currencies, the supported currencies are: EURUSD (H1), AUDUSD (H1), GBPUSD (H1), EURJPY (H1) and USDJPY (M30) .

It has a solid recovery function, the lot gets increased after 3 or more consecutive losses. A very fast recovery is expected.

Sometimes is trades every signal, sometimes it doesn’t. After a more careful analysis I reached the conclusion that sometimes, under certain conditions opening at every signal is a bad thing to do. Why? Suppose we’re talking about a forex robot that opens a trade every time the current candle closes above/bellow a moving average. When a violent trend occurs many trades are being opened and if a more violent reversal occurs then we’re out. It’s wiser to analyze the market conditions before starting to open more than one trade in the same direction for the same strategy.

Is a very (and I mean very!) frequent trader, you won’t get bored watching it. 🙂

Pattern validation.

If the market suffers major changes, the pattern is no longer valid and the robot should be retrained in order to learn the new market patterns.

As I said before, it was a complete mystery to me why 99% of forex robots fail in spite of such great backtests. One possible answer to this question is over-optimization/curve fitting. The forex robot is optimized from 2000 to 2016 and only the best looking equity curve is selected. This is terribly wrong because that nice looking equity curve is only an accident that doesn’t repeat so often in real trading! Therefore, as a consequence, the robot fails a few month after the launch.

A second possible answer is that the market changes to some degree and the strategy no longer works until the market changes in our favor again.

My approach is different: Stop loss is smaller than Take Profit and no more than 6-7 losing trades in a row are allowed. The recovery function makes sure that we are in profit all the time.

I trained the robot from 2009 to 2016 and then tested it against unseen data, from 2003 to 2009. If the number of consecutive losses in a row doesn’t change, then the pattern is solid enough.

If the number of allowed losses is exceeded, then the market changed and the robot should be retrained.

How recovery function works?

The way this robot is designed is very important. I need to know if the backtests are valid or not, this is the main problem of all forex robots.

Optimizing the wrong way (99% of forex robot vendors are doing it, intentionally or not)

The robot is optimized for the whole testing period, for example between 2000 and 2016. It selects only the best trades, the equity curve looks nice, everything is fine, then after a few months, it bites the dust. At first, as I stated before it was a complete mystery to me why. Then I realized that the market does not behave according to our backtests, the conditions change and therefore the pattern is broken. The second important thing is that backtesting this way there is no checking procedure! How can we tell if the backtest is valid or not? We can’t!

Optimizing the right way.

The robot is optimized using data between 2003 and 2009. Then, the robot is tested against unseen data, between 2009 and 2016. If the drawdown length, drawdown depth and number of consecutive losses remains the same, then the strategy is valid. This is our main assumption.

What is new in the current version v30.

1. Trailing stop. We don’t want to lose the profits entirely if the market turns against us, especially when the traded lot size is bigger, therefore the robot has not the ability to decide when the trailling stop should be activated. If the market goes in our favor, we can follow it and win big!

2. Lot increment algorithm has been changed. Suppose the starting lot is 0.1, then the lot increment goes as follows:

If the 7th trade is lost, then the next lot size equals initial lot of 0.1 and the cycle continues. If you lose a 7 trades cycle (which never happened during 10 years of backtests), you lose 20% of your account, which will be recovered in no more than 3-4 months. Awesome, right?

However, thanks to the trailing stop function we added, if the lot size of a trade is 0.1 (the initial lot size) and the profit for that trade is higher than the initial tp, the lot size doesn’t increment even if the next 3 trades are lost. Why? Because we are still in profit overall and we can afford to take one more loss (or more) with lot = 0.1 (initial lot). Now we can win big if the market goes our way and we can take many future losses without the need to increment the lot size.

To put it simple, the lot size rarely increases! And this is a huge step forward because the risk is highly reduced!

3. Multi currency trader without additional controller. If for trades trades we have a profit of pips pips, the lot size doesn’t get incremented. For example, if trades=20 and pips=200, it means that for the last 20 trades (all currencies) we have a total profit of 200 pips. We are satisfied with it and we don’t see the point of increasing the next lot size even if the last trade has ended with a loss.

4. Protection against stop loss hunting. As much as we like to hide the sl and tp levels from brokers, is very unsafe to do it because the market may turn violently against us wiping up the account. sl and tp remains in place, but there is an additional hidden function which does exactly that: if the broker doesn’t close the trade for profit even if tp is in place, the function activates and closes the trade.

5. You can now close the trades manually for loss or profit. You could have done it in the previous version also, but now all bugs have been fixed.

6. The core algorithm has been reoptimized. Neural networks and bayesian filters has been improved, the main purpose is to reduce the risk of ruin.

7. New tp and sl setting feature. In the previous version, the sl and tp levels are not set when opening a trade, the trade is modified right after opening with the desired sl and tp levels. Now you could activate the function which enables you to set tp and sl when opening a trade. A rather useless function you may say, but some clients reported that this is the only way Zamolxis works on their broker, by setting tp and sl when opening a trade, not after.

8. Please welcome to our new pair: EURJPY.

If you ask me, I think I succeeded in getting the best out of forex robot trading. This page will serve as inspiration source for many forex robot vendors, but it’s ok. 🙂

So, is it more profitable than the previous version v20? Short answer is no, the overall profit is almost the same, but the safety is highly improved, the risk has been greatly reduced . Please take a look at this picture, it’s a comparison between the previous version and the current one:

Let’s take USDJPY for example: Version 2.0 produces a profit of 145.18% and only 1532 pips. Version 3.0 produces a profit of 102.15% and 3410 pips! Which means the version’s 2.0 higher profitability comes from a large number of increased lots which leads to a much larger risk! See the difference?

Let’s see how it trades in the wild, how profits are protected in version 3.0.

Thanks to our trailing stop function we added, sometimes , when the market conditions are appropriate, you only risk 8 pips in order to get 82 !

Now, take a look at both forward tests. The new version produced 1600 pips within 2 months while the previous one produced 3000 pips within 18 months! The profitability is now focused on individual trades instead of just increasing lots. This is a huge step forward.

Overall profitability, if all pairs are traded in portfolio, is the same! All years are profitable.

Portfolio (EURUSD, AUDUSD, GBPUSD, EURJPY, USDJPY)

When I designed this system I had the followings in mind:

– I don’t have the patience to suffer many years of drawdown (Ok, I’m finally admitting it, I’m not a patient man even if I’m doing all my best to become one). But leaving aside my lack of patience, what’s the point of waiting 2-3 years without even being certain of further recovery? So, I’m not willing to wait for recovery more than 3 months, the most! The portfolio analysis shows a maximum drawdown period of 70 days, but in real life trading I’m sure that it will be extended to 3-4 months. Ok, so no more than 4 months without profit. Please take a look at my former portfolio, for example read this post, the main problem is the drawdown length. Without a nice recovery function, you are doomed to wait for a hypothetical recovery for years.

– Drawdown depth should be no more than 25% of my account, the most! I’m willing to take such a risk if the recovery is fast. Portfolio analysis shows a maximum drawdown of 15% but as I said before, real trading conditions are different and I’m expecting a 25% drawdown.

– I have to know exactly when the strategy becomes invalid and when the robot should be retrained.

Is the profit guaranteed?

No, of course not, aren’t you tired of being scammed? Nobody can guarantee the profit, no one can foresee the future and market changes. All we can do is try our best according to our current knowledge of math, programming and statistics.

How to Become a Successful Forex Trader.

Retail traders just starting out in the forex market are often unprepared for what lies ahead and end up undergoing the same life cycle: first they dive in head first – usually losing their first account – and then they either give up, or they take a step back and do a little more research and open a demo account to practice. Those who do this will often eventually open another live account, and experience a little more success – breaking even or turning a profit.

[Successful trading in the forex market requires a variety of skill sets. Investopedia's Become a Day Trader Course teaches you a proven strategy with six different kinds of trades that work in any market. With over five hours of on-demand video, exercises, and interactive content, you'll gain the confidence and knowledge to trade on a daily basis with consistent results.]

Why Medium Term?

So, why are we focusing on medium-term forex trading? Why not long-term or short-term strategies? To answer that question, let's take a look at the following comparison table:

Now, you will notice that both short-term and long-term traders require a large amount of capital – the first type needs it to generate enough leverage, and the other to cover volatility. Although these two types of traders exist in the marketplace, they are often positions held by high-net-worth individuals or larger funds. For these reasons, retail traders are most likely to succeed using a medium-term strategy.

The Basic Framework.

The framework of the strategy covered in this article will focus on one central concept: trading with the odds. To do this, we will look at a variety of techniques in multiple time frames to determine whether a given trade is worth taking. Keep in mind, however, that this is not a mechanical/automatic trading system; rather, it is a system by which you will receive technical input and make a decision based upon it. The key is finding situations where all (or most) of the technical signals point in the same direction. These high-probability trading situations will, in turn, generally be profitable.

Chart Creation and Markup.

Selecting a Trading Program.

We will be using a free program called MetaTrader to illustrate this trading strategy; however, many other similar programs can also be used that will yield the same results. There are two basic things the trading program must have:

Setting up the Indicators.

Now we will look at how to set up this strategy in your chosen trading program. We will also define a collection of technical indicators with rules associated with them. These technical indicators are used as a filter for your trades.

If you choose to use more indicators than shown here, you will create a more reliable system that will generate fewer trading opportunities. Conversely, if you choose to use fewer indicators than shown here, you will create a less-reliable system that will generate more trading opportunities. Here are the settings that we will use for this article:

Adding in Other Studies.

Now you will want to incorporate the use of some of the more subjective studies, such as the following:

Significant trendlines that you see in any of the time frames Fibonacciretracements, arcs or fans that you see in the hourly or daily charts Support or resistance that you see in any of the time frames Pivot points calculated from the previous day to the hourly and minutely charts chart patterns that you see in any of the time frames.

In the end, your screen should look something like this:

Finding Entry and Exit Points.

The key to finding entry points is to look for times in which all of the indicators point in the same direction. Moreover, the signals of each time frame should support the timing and direction of the trade. There are a few particular instances that you should look for:

Bullish candlestick engulfings or other formations Trendline/channelbreakouts upwards Positive divergences in RSI, stochastics and MACD Moving average crossovers (shorter crossing over longer) Strong, close support and weak, distant resistance.

Bearish candlestick engulfings or other formations Trendline/channel breakouts downwards Negative divergences in RSI, stochastics and MACD Moving average crossovers (shorter crossing under longer) Strong, close resistance and weak, distant support.

It is a good idea to place exit points (both stop losses and take profits) before even placing the trade. These points should be placed at key levels, and modified only if there is a change in the premise for your trade (oftentimes as a result of fundamentals coming into play). You can place these exit points at key levels, including:

Just before areas of strong support or resistance At key Fibonacci levels (retracements, fans or arcs) Just inside of key trendlines or channels.

Let's take a look at a couple of examples of individual charts using a combination of indicators to locate specific entry and exit points. Again, make sure any trades that you intend to place are supported in all three time frames.

In Figure 2, above, we can see that a multitude of indicators are pointing in the same direction. There is a bearish head-and-shoulders pattern, a MACD, Fibonacci resistance and bearish EMA crossover (five - and 10-day). We also see that a Fibonacci support provides a nice exit point. This trade is good for 50 pips, and takes place over less than two days.

In Figure 3, above, we can see many indicators that point to a long position. We have a bullish engulfing, a Fibonacci support and a 100-day SMA support. Again, we see a Fibonacci resistance level that provides an excellent exit point. This trade is good for almost 200 pips in only a few weeks. Note that we could break this trade into smaller trades on the hourly chart.

Money Management and Risk.

Money management is key to success in any marketplace but particularly in the forex market, which is one of the most volatile markets to trade. Many times fundamental factors can send currency rates swinging in one direction – only to have the rates whipsaw into another direction in mere minutes. So, it is important to limit your downside by always utilizing stop-loss points and trading only when good opportunities arise.

Here are a few specific ways in which you can limit risk:

Increase the number of indicators that you are using. This will result in a harsher filter through which your trades are screened. Note that this will result in fewer opportunities. Place stop-loss points at the closest resistance levels. Note that this may result in forfeited gains. Use trailing stop losses to lock in profits and limit losses when your trade turns favorable. Note, however, that this may also result in forfeited gains.

The Bottom Line.

Anyone can make money in the forex market, but this requires patience and following a well-defined strategy. However, if you approach forex trading via a careful, medium-term strategy, you can avoid becoming a casualty of this market.