Why Do Most Forex Traders Only Trade The Short-term Price Charts?
A lot of the major financial institutions take very long-term positions on the various
different currency pairs, but amongst individual traders there are very few traders who trade this way. So why is this?Well I think the main reason is because people who trade for themselves from the comfort of their own home simply do not have the patience to hold on to these long-term trades. Although you can potentially make huge profits from riding these long drawn out trends (often totalling several thousand points), the majority of traders prefer the excitement of day trading or prefer to place trades that last one or two days at the most.
Another reason why many people are put off of the idea of long-term trading is because they do not know when to exit a position. This can be a real problem because it you call it correctly, do you bank a profit of 500 points, for instance, or do you try and hold on for another month or two in the hope that it falls another 2000 points? If you hold on, the price could quite easily bounce back and wipe out your current 500 point profit.
This is a real dilemma and is one reason why many traders prefer to trade short-term charts. If they get it wrong they know that another trading opportunity will be along very soon. However this isn't always the case when you trade the long-term charts such as the daily or weekly charts, for example, because you may be waiting months for the next decent set-up.
Finally there is one other reason why people stick to short-term trading and that's because if you trade the daily or weekly charts, you obviously have to employ pretty large stop losses in order to give the position a chance to unwind. You can't target gains of 500, 1000 or 2000 points, for instance, if you use a stop loss of 20 or even 50 points, because this simply isn't big enough. So because you need to use a larger stop loss, you obviously need a decent amount of capital to trade with otherwise one loss could destroy your account.
So to summarize, although I believe that long-term trading is the easiest and most profitable way to trade the forex markets, I accept that it's not for everyone. For a start you need a decent amount of capital behind you, and you also need a great deal of patience and discipline in order to extract maximum profits from these long-term trades.
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