Forex, also known as foreign exchange, is the exchange of one currency for another. The Forex market is the largest financial market in the world, with a daily turnover of over $5 trillion. Forex trading can be done in two ways: short term and long term. While short term trading can be lucrative, long term trading is considered to be a better option for many reasons.
Long term trading involves holding positions for a longer period, usually weeks or months. This type of trading is based on fundamental analysis, which focuses on economic and political factors that affect the value of currencies. Long term traders aim to capture trends that are driven by these factors and hold onto their positions until the trend reverses.
One of the main advantages of long term trading is that it allows traders to avoid the noise and volatility of the market. Short term traders are often susceptible to market noise, which can cause them to make impulsive decisions based on short term fluctuations. Long term traders, on the other hand, are able to filter out this noise and focus on the long term trends.
Another advantage of long term trading is that it requires less time and effort than short term trading. Short term traders are constantly monitoring the market and making quick decisions based on short term fluctuations. This can be time-consuming and stressful. Long term traders, on the other hand, only need to monitor the market periodically and make adjustments to their positions as needed.
Long term trading also allows traders to take advantage of compounding. Compounding is the process of reinvesting profits to generate even greater profits over time. With long term trading, traders can reinvest their profits into their positions, which can lead to significant gains over time.
Long term trading also allows traders to benefit from the power of diversification. Diversification is the process of spreading investments across different assets to reduce risk. With long term trading, traders can diversify their portfolios by investing in different currencies, which can help to reduce the risk of losses.
Long term trading also allows traders to benefit from the power of leverage. Leverage is the ability to control a large amount of money with a small amount of capital. With long term trading, traders can use leverage to increase their potential profits, which can be significant over time.
In conclusion, long term trading is considered to be a better option for Forex traders for many reasons. Long term trading allows traders to avoid the noise and volatility of the market, requires less time and effort, allows traders to take advantage of compounding, diversification, and leverage, and can lead to significant gains over time. While short term trading can be lucrative, long term trading is a more sustainable and profitable strategy in the long run.
