Long Term Trading Strategy for Forex

Hey guys, this is Nathan Tucci with some insight on how to trade a long term strategy in the Forex Market.

If you have been following me for any amount of time, you may know that I am a big supporter of longer term trading strategies when it comes to Forex.

There are a lot of reasons why I believe that longer term trading sets you up for success more so than using smaller time frames to trade, and I will get into several of those reasons within this article.

I also lay out a few of those reasons in a more light-hearted tone in my Scalp vs Swing Article which has gotten a lot of attention.

The first thing I want to do is clarify that when I say “Long Term” I am meaning at least looking on the daily charts. I believe that one of the big issues with Forex traders today is that they are so caught up in short-term trading and scalping (which again, I really do have a hard time believing traders can be profitable with), that they don’t even recognize what long term trading is.

I have had many traders say something like this to me: “I want to begin looking at long term trading because scalping has not worked for me. I am now using a long term strategy, trading the hourly charts.”

See, I think the above statement is one of the issues with Forex Traders today and why so many have a lot of trouble being profitable.

For some reason, the majority of traders—especially beginners—are so bent on scalping that they don’t even have a realistic idea of what long term trading really is (I know my friend, Zaheer, will agree with me on this one).

So again, when I am talking about “Long Term Trading,” I am talking about using the Weekly charts (and even the Monthly) as your guide for set-up potential and targets, and then, perhaps, using a lower time frame to actually execute the trade for more precision.

Before I get into the actual strategy I want to share with you, I want dig a little more into why the right perspective is so important when it comes to trading long term strategies—I know that many of you only care about the actual strategy guidelines, but I believe that the following information about perspective and a holistic approach is actually more important than the strategy guidelines (comment below if you agree/disagree with me on that).

As an example of how this “Short Term Mindset” can get you into trouble, let’s take a look at the EUR/USD.

Someone looking at the EUR/USD on a 4HR chart would see something like this:

EUR USD 4 HOUR CHART

EUR USD 4 HOUR CHART

 

In the above chart, you see that there is a lot of bullish momentum moving toward higher highs. From this perspective, it looks as though all bullish continuation set-ups will be great entries; however, a longer term view of the EUR/USD at the same exact time tells a different story:

WEEKLY EUR USD CHART

WEEKLY EUR USD CHART

You can see by looking at the Weekly chart, that the EUR/USD is in a long term down trend, and that the bullish rally on the 4HR chart is just a pull-back rather than a raging trend as it appeared before.

Not only is it only a pullback, but it is a pullback heading into unsuspected resistance (unsuspected if you only look at the 4HR and don’t realize what is going on long term).

If we move a little bit ahead in time, you can see a bearish bounce off the resistance level. To the trader viewing only the 4HR chart, this may look like a great time to buy again in anticipation of Bullish trend continuation…

buy set up on eur usd

buy set up on eur usd

What the 4HR trader may not realize is that this is not a pullback of the 4HR trend, but rather a continuation of the Weekly trend. So, where the long term trader sees obvious Bearish continuation potential, the short term trader thinks this is “just a pullback.”

So to the 4HR trader, this looks like an unexpected major reversal in the market, but to a long term trader, it is an obvious and expected continuation of market flow, looking like this on the Weekly view:

WEEKLY CONTINUATION

WEEKLY CONTINUATION

This is why it is so important to have a long term view of the market ESPECIALLY if you are going to call yourself a long term trader. Again, so many people looking at 4HR charts think they are long term traders, but they are ignoring the real long term time frames—and that can get you into big trouble just like in this real life example… Those two bearish weekly bars you see would crush someone trying to take long positions on the 4 Hour chart, yet they are just part of the flow on the Weekly view.

Now, I am not saying that you cannot trade profitably on the 4HR charts; I am saying that it is very difficult to make consistently profitable trades when you do not have a good perspective of the markets longer term movement—especially when trying to trade an intermediate time frame like the 1 or 4 hour time frames.

With that said, let’s talk about my long term strategy for traders who want to be profitable and consistent! :)

One major note about this strategy is that you must be disciplined if you want to succeed. Yes, you need to be disciplined with all strategies to expect success, but in particular, if you want to trade a long term strategy effectively, you must control your emotions and desire to “get into the market.”

One of the biggest mistakes that unprofitable traders make is over-trading and over-managing their trades. As human beings, we have the desire for action and involvement which tends to cause us to always want to have a trade open or always want to manipulate the trades we do have open, and I can promise you that this will only lead to less and less profitability.

If you want to be successful using the long term strategy that I am presenting to you, you must accept that there will not be a ton of entries (which is a good thing, in my opinion) and that there will not be a need to “jump in” to the open trade and manage it.

Here is how the strategy works:

1 Take a look at the Monthly and Weekly charts.

Looks for trends on these longer term charts that have good momentum in the respected direction. Something like this:

WEEKLY CHART OF TREND

WEEKLY CHART OF TREND

Identify the direction of the trend (bear or bull) and make a note to only look for entries in the direction of that trend (for instance, if it is a bullish trend, look for buys).

2 Zoom into the Daily Chart and draw a Fibonacci Retracement from the current high to current low (or the other way around).

Here is how to draw a Fib Level for those that don’t know:

 


3 Look for pullbacks on the Daily time frame that are approaching the 38.2, 50.0, or 61.8 Fib Levels.

usd cad daily forex chart

usd cad daily forex chart

If price is getting close to one of those 3 key fib levels, be prepared to make an entry.

4  Look for Candlestick Entry after Fib Level is Tested (touched by Price)

As soon as price touches a weekly Fib level, you are now in the “waiting for signal” mode. In other words, the criteria has lined up for you to make a trade, now all you need is the signal to confirm your forecast.

For this strategy, the signal is a momentum daily bar in the direction of our long term trend. An ideal daily signal candle will have a tail that has tested (pierced through) the Fib level, but then reversed back into the direction of the trend:

test of fib level

test of fib level

5 Take the Entry. Place your stop and target.

Here’s how…

 

 

6th Wait… then win or lose.

Just like I showed you in the video above; some trades win and some lose.

Don’t try to manage the trade or get fancy, just trust the strategy and let the trade be a winner or a loser. Trading is all about Math—a good strategy has winners and losers, but at the end of the year, the winners out-weigh the loser. They will in the strategy if you follow it with discipline!

Hope you guys enjoyed learning one of my favorite long term strategies. Please leave a comment with any feedback.

Comment if you plan on trying the strategy or comment if you hate the strategy!

Either way, I’d love to get your feedback!

 

 

The following two tabs change content below.

NathanTucci

Nathan Tucci has been with Winner's Edge since 2011 as a writer and trader. He specializes in strategy development and enhancement and loves to share what he learns from testing, research and real world experience.
Follow our social media:
1359774937_facebook 1359774984_linkedin 1359774949_twitter 1359774960_google 1359774973_rss 1360027635_youtube

Winner’s Edge Trading, as seen on:

Winner's Edge Trading in the news

  • martin ettenes

    Enjoyed the writing and video’s but will have to go over it again a few times as I am a newbie and using longterm for the fist time. Thank you for the information, they are helpful and exciting.

  • currencytrader

    I think the reason most people try to scalp is they are taught to be scared of the market by teachers that are trading failures…I agree with Nathan, the trader that is here for the long term is a swing trader…..the data that can be used is measured in volumes instead of snippets….the next thing to get past is letting a profitable trade run and not being so scared of a loss you fail to maximize profits….the one piece of advice I would give every trader is learn enough about Elliott Wave to distinguish the difference between motive waves and corrective waves and once you see the tell tale sign of one, know what the most likely out come of the next move….is it a retrace or breakout, and how far is it expected to travel so I can set profit targets with no guess work and I can set stops that only trigger when I am proved to be wrong…..Good trading everyone. Tim

  • Thomas Harvey

    Nathan, how do you deal with the swap rates with this longer term strategy?

    I trade this way but often have to close a trade due to the overnight swaps.
    What broker do you use? I am looking for a broker with competitive swap rates, I know some pairs have a positive value but I cant consider that when looking at the longer trends.
    Thanks,
    Tom

  • Phoebe Ejimbe

    Thanks Nathan! An awesome strategy! It is my favourite strategy. My problem is I lack the necessary patience it needs to be profitable. You wrote “Trading is all about Math—a good strategy has winners and losers, but at the end of the year, the winners out-weigh the losers. They will, in the strategy, if you follow it with discipline!” if I may add, AND PATIENCE. Great write-up! Very encouraging! I am definitely going back to this strategy in 2014.

  • Paul

    Excellent strategy, I have been looking for a good simple long term strategy,this will free up my time and still allow me to be involved in trading. Thanks very much :)

  • agnnis bingamin

    Truely said…..i too believe in long term strategy………

  • Julius

    I totaly agree. If anything makes sense, it’s longer time frame (>daily, weekly preferably, montly to double check). But the main think is: why should the market go up or down? The future events, news, data are unknow, therefore from pragmatic point of view it’s pure betting.
    But makes much more sense betting higher time frame than lower, because of volatilty and more clear trend.
    If I would know something about the future I can bet on it, otherwise makes no sense..:-) Maybe for fun..

  • http://www.facebook.com/bang.item.144 Bang Item

    Thank you, Nathan. You give me hope.
    I’m a newbie (a real rookie). Here is my question: Does your system can consistently yield 10% (higher) monthly?
    Regards

  • Joe Kimmi

    Nathan you are simply a God send. I v been struggling so much with my strategy and have lost quite a bundle but this gives me hope. I am based in Nairobi Kenya and I want in on anything you can teach me just throw it my way coz am willing to learn. God bless…

  • R.JOTHI

    Respected Fx GOD……………………….

    Realy Realy Real $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$uper

  • transporter

    thanks a lot, u remind me about the real trend after read this article.

  • JOH

    All makes sense. Was watching a setup on EURAUD which has now moved predictivaly south. The reason I didn’t take it though was because the pair had made a lower high back on Nov 11. Q. when I trade with the trend how should I consider these HL when looking to go short?

  • NathanTucci

    Hey Thomson, thanks!! Glad you liked it!

  • NathanTucci

    Hey Mike, glad you enjoyed the article! Yeah, you are definitely NOT alone… I, too, struggle with be tempted to take a trade that does not fit my plan just because it “looks good” at that moment in time, but that is definitely not the profitable way to trade… thanks again for reading and leaving a comment!

  • Thomson

    Thanks for sharing your strategy very well explained and simple.

  • Mike R

    Thanks for sharing your strategy, Nathan. It is simple and you explained it very well. It does demonstate that a simple strategy can be very effective and it highlights the importance of patience and money management. One of my major challenges in trading is patience and that can be very costly. I feel a strong urge to trade every time that I switch on my charts (and I know that I am not alone). I am gradually getting comfortable with trading longer term strategies and your reasoning and logic for favouring those give strong evidence that longer term strategies are the way to go.

  • NathanTucci

    Thanks Olu, I appreciate you taking the time to read and leave a comment, and am really glad that the article may be of use to you!

  • NathanTucci

    Hey Roy, thanks for reading and leaving a valuable comment! Yes, I do agree that understanding your personality is a big part of trading. To me, it is amazing that anyone can be profitable on smaller time frames because the room for error is so minute, but that is certainly very impressive on your behalf!

  • NathanTucci

    Thanks Shivam, those are very kind words and I really appreciate you taking the time to read and leave a comment. Glad you enjoyed the article!

  • NathanTucci

    Thanks for reading Sean! I appreciate you taking the time to leave a comment as well. I am very glad that you enjoyed the article!

  • NathanTucci

    Hey Anthony, thanks for reading and thanks for the comment! To determine the trend, I usually take a look at the weekly chart and take into account a year or so.. it depends on how long the current weekly trend goes back though, because if it has been trending for 3 years straight, then I will zoom out and take all of that into consideration.

  • NathanTucci

    Hey David, thanks very much for reading and leaving a comment. I appreciate the compliment and look forward to a lot more good stuff next year!

  • NathanTucci

    Awesome, Anthony! Thanks so much for taking the time to read and even trying the strategy; be sure to let me know how you do using this strategy!

  • NathanTucci

    Hey thanks for reading. Be sure to let me know how you do using this strategy!

  • NathanTucci

    Hey Gil, that is great! Glad to hear you are having success using the fibs–they can definitely be a great tool if you use them the right way! Thanks so much for reading my article and leaving a comment, I very much appreciate it!

  • NathanTucci

    Hey Dave, Yeah I agree with you on that. I am definitely guilty of doing that very thing before… for some reason it is tempting to get “caught up” in a smaller time frame–watching the price move–and not realizing that if you take a trade JUST based on that time frame, you may be ignoring the longer term picture. Thanks for the comment, I think you are right on with the issue of ignoring the big picture!

  • NathanTucci

    Hey Tony, thanks for reading. I appreciate you taking time out of your day to read my article and leave a comment as well. Yeah, unfortunately, you can’t really have the best of both worlds with high probability long term trades and still manage tight stops, but the best way to be profitable is to understand how to dial down your risk with smaller size trades and remain consistent even after losses. Using a long term strategy, like this one, takes a lot of patience but it can be very profitable if you stay disciplined.

  • NathanTucci

    Thanks for watching/reading and leaving a comment, I appreciate it!

  • NathanTucci

    Thanks for reading! I am glad this article may serve as a useful piece of information for you. Feel free to re-post here later on and let us know how your strategy is going using these longer time frames.

  • NathanTucci

    Thanks Louis, I appreciate you taking the time to read and also leaving a comment. Let me know how you do using this strategy!

  • NathanTucci

    Hey Joe, thanks for the great comment, I really appreciate you putting the time and effort into adding value to this post with a great, informative comment. I don’t believe I have ever heard anyone lay out the reasons for using the daily chart as you did, and that is very interesting..
    I would love to learn more about your strategy, Perhaps you could write out a nice explanation of it like I did in this article and we could post it on the blog as a guest post by you. I am sure our readers would love to get your perspective!

  • Joe

    Hi Nathan, I agree with longer time frames and specifically days not hours, minutes or weeks. I my self only trade off day charts, and these are my reasons.
    1. Spread eats up a large part of an intraday trade – often 10% or maybe more.
    2. The broker is acting against you – he loses if you win, and he wins if you lose. This is in the fine print of all new accounts. A dealing desk will give lower spreads but will actively make you lose.
    3. Days are the ‘natural’ time frame for trading, where as hours or minutes or weeks are arbitrary units.
    4. Candles were always meant to be on days – from the earliest time in Japan this is how they started.
    5. Days means you can plan trades at ease.
    I think these are compelling reasons to trade from day charts, so that’s what I do.
    Joe
    PS. If you are interested, I just look for trends and jump on. I use pairs that naturally tend to trend for long distances (such as the Euro crosses among others EURNZD etc) I use MA8 and MA12. When the MAs are both rising, and the 8 is above the 12, I put a long entry just above the most recent high. I trail along the MA8 until BE, then along the MA12 when it catches up. I raise the stop to below a candle that suggests the trend may have ended (eg a pin bar against my trade). If it isn’t taken out I wait for the MA12 to catch up and keep trailing. (the opposite of all this for shorts) No fib levels used. Pretty successful!

  • Louis Oliver

    Thanks for this, I have tried this some on dly & hrly charts and had some success,but needed these s/l & target levels to profit.will work on your longterm trades with this system with patience.Will advise outcome down the road.

  • Rotodyne

    Thanks for the information, I plan to start the new year with longer time frames and I was going to use 4 hour charts. But now I will look at weekly and daily charts more.

    Thank you.

  • tradewin

    Like the clear video fib strategies.

  • http://twitter.com/bongchubb Tony ed

    Very nice post. Always thought 4hours was long term. My problem with long term as you presented is the fact that stops and loses are usually greater too. Some people think the market is too volatile and unpredictable for you to stay too long in a trade but I’m sure all will agree your analysis is very correct.

  • bigbaddave

    This makes a lot of sense. It is entirely too easy to look only at a single time frame and ignore the larger picture.

  • Gil

    Hi Nathan, thanks for this great post
    I’m also a great fun of fibo retracement and it’s been working very well for me also. Your strategy confirms that I’m doing something right
    Thank you
    Gilberto

  • eking

    I will try this strategy. Thanks, Nathan.

  • Anthony

    Great stuff Nathan, I have always believed in long term trading and this by far the best strategy I have come across’ I intend to trade this strategy next year on bigger time frames.

  • David

    I like your no b/s approach easy to understand and straight forwardness,hope to enjoy you next year.
    Sincerely
    David

  • http://www.facebook.com/anthony.castellon.39 Anthony Castellon

    Interesting. How many days/months do you usually go back to determine the down/uptrend?

  • Sean Henry

    Very good article, Nathan! Yes, it is all valuable content. It goes with my observation and certainly has the edges required for winning.

  • shivam sinha

    Thanks for this truly invaluable strategy,i really appreciate it.Pleasure is always mine.

  • ROY

    HEY NATHAN, GOOD ARTICLE.

    AS FAR AS LONG TERM VS. SHORT TERM, BEING SUCCESSFUL IS ABOUT FINDING WHAT SUITS YOUR PERSONALITY. WHEN I STARTED TRADING FOR A LIVING I THOUGHT DAY TRADERS WERE NUTS. I TRADED LONG TERM AND GOT KILLED BLEW UP 2 ACCOUNTS.

    THEN I TRIED SHORT TERM AND FOUND IT SUITED MY PERSONALITY WAY BETTER. NOW I TRADE SYSTEMS USING 1HR, 15 MIN, 5 MIN AND 5 PIP RANGE BARS. I AM A DISCIPLINED BUT NOT A PATIENT ONE. THERE ARE THINGS YOU CAN PICK AND CHOOSE WHEN YOU TRADE, BUT YOU CAN’T IGNORE WHAT YOU ARE.

  • David MaC

    Pretty good stuff Tracy…U a good honest Guy Compared to all the crapp out there in the Forex arena!…We appreciate u!….. MERRY CHRISTMAS & GOD BLESS !

  • NathanTucci

    Hey Fabrice. As always, thanks so much for your time and effort into learning and your constant appreciation–it means a lot to us. For me, candlesticks are definitely an important part of seeing levels.. One thing that speaks volumes to me are when there are repeated wicks of a candle that tried to pierce through a certain price level but continued to get rejected. This shows me that price has made multiple attempts to move to a higher (or lower) price but kept getting pushed back by the level. When this happens over days and weeks on these longer time frames, I know that this is a big, important level.. Then, what I look to do, is pair that with another level. For instance, if the major horizontal level also corresponds with a Fib from a recent swing or a current trend line, that adds even more value to the price level. Once I clearly identify these important levels, I just wait for price action to react to them and then attempt to take advantage of the reaction. If it is a trend line and horizontal combination and price rounds out right at the level and begins to continue the long term trend, I will certainly be looking to take that trend continuation trade because it is a high probability entry and, most importantly, I have very major level to protect me against price going against me even if it is trying to bounce the other way and retest the trendline/level/fib or whatever. For me, candlesticks help me “see” price the best, but that definitely does not mean they are the only way to trade profitably–it is just my personal preference and you should have your own preference too!

  • Olu

    Excellent and simple strategy. Will be adopting this one

  • Fabrice Goeyvaerts

    Hi Nathan,
    To me, this is excellent stuff with precious tips and avices (like going WITH the longer time frames trend, where to put stop-loss and target, avoiding entry if major level is too close from entry, …). I will definitely put that strategy into my trading plan !
    What I love with you and Casey is your honesty and transparency (not ONLY showing winners but clearly saying and showing that we will loose too !).
    I am always amazed with the quality of your articles and the knowledge you already have at your young age. How good wil you be at 30 or 40 !!!
    Just one very basic question:
    - how do you define and recognize a major level (do you always look at candle charts only to spot it ?) ?
    Thanks so much for all your efforts in helping us trading with an edge.

    Fabrice

  • NathanTucci

    Hi Zaheer, thanks for reading and leaving some feedback.

    Let me address your questions:

    1. This “pin bar” occurs pretty often, about 30% of the time I’d say, because often times price moves slightly through the major level before reversing back to respect the level.

    2. I typically use a risk of .5% per trade, but if my trade management strategy includes potentially adding to the trade, then I would adjust the risk to make sure that I don’t have risk of more than 1% open at one time.

    3. In this strategy, I am not typically going to add to the trade if it does continue in the larger trend direction, because my target is going to be too short to use that methodology. In order to make the strategy as high probability as possible, I am only targeting the “bounce” to the next major level which is not normally going to be far enough away for me to begin adding positions in my favor.

    4. The pip gain on the “bounce method” changes drastically depending on the pair and the largeness of the swing that you are using the fib retracement on. For instance, if the swing is several thousand pips (like a massive run on the GBP/NZD) the distance between the fib levels–which directly affects my stop and target–will be much much different than a 500 pip swing on the EUR/GBP.

    Hope the above answers your questions appropriately.

    Thanks again for reading and leaving a comment!

    Nathan

  • NathanTucci

    Thanks Imino, appreciate you taking a look and giving it a try–please let me know how successful you are using it.

  • fucknathan

    your a dick

  • Zaheer Anwari

    An interesting read and you are right about the benefits of long term trading and also how novice traders misunderstand what long term trading actually is. I have some questions regarding the strategy.

    1. How often do you see the signal bar set up exactly like that say put of 20 retracements?

    2. How do you work out your risk?

    3. How many times do you enter in on the trend as it progresses?

    4. What is the average number of pips you have taken using this strategy?

  • lmino85

    Very good article. Makes a lot of sense. I will give it a shot.