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Risk Management for Long Term Trading

Long-term forex trading strategies are not a one-size-fits-all solution for all traders, but for those who prefer to hold positions for extended periods, these strategies can be highly effective. Here is a comprehensive guide on risk management for long-term trading, focusing on advantages, disadvantages, and common mistakes to avoid.

What is Long Term Trading?

Long term trading is a strategy where traders hold open positions for a long period—ranging from several days to weeks or even months—to achieve profit targets. Long-term traders typically do not need to monitor charts daily and rely more on fundamental analysis than technical analysis.

Advantages of Long Term Trading

  1. Less Psychological Pressure:
    • No need to monitor the market every day. You can set a strategy and wait for the position to hit the target or stop loss.
  2. No Daily Chart Monitoring:
    • With a long-term approach, you don’t need to spend much time in front of the computer.
  3. Simpler Analysis:
    • The primary focus is on fundamental analysis, such as economic reports, monetary policy, and global news, rather than complex technical analysis.

Disadvantages of Long Term Trading

  1. Profit May Take Longer:
    • The process of gaining profit can be slower compared to short-term trading strategies.
  2. Capital Needs to Match Lot Size:
    • Although large capital is not necessary, it is important to understand how lot size affects potential profits and losses.

Case Study and Capital Calculation

Let’s look at an example with $100 capital in a standard account with InstaForex and see how lot size affects risk management.

Lot Size

Value per Pip

Risk per Pip

Risk at 335 Pips

Risk at 942 Pips

Risk at 1131 Pips



















Risk Management Formula for Long Term Trading

  1. Consider Highest/Lowest Prices:
    • Before opening a position, consider the support and resistance levels and the highest/lowest prices that have occurred to determine potential risk and reward.
  2. Avoid Opening Positions Without Calculation:
    • Avoid randomly opening additional positions. Every new position should be based on thorough analysis.
  3. Avoid Unnecessary Hedging:
    • Hedging can be a good strategy if used correctly, but many novice traders hedge without a clear exit plan.

Common Mistakes in Long Term Trading

  1. Ignoring Highest/Lowest Prices:
    • This mistake can lead you to open positions with too much risk. Always check previous highest and lowest levels.
  2. Opening Repeated Positions Without Calculation:
    • Adding positions without a clear strategy can worsen losses. Make a trading plan and stick to it.
  3. Hedging Without a Clear Strategy:
    • Hedging can be a double-edged sword. Ensure you have an exit plan if the market moves against you.

Long Term Trading Formula

  1. BUY with Risk Down to the Lowest Price:
    • When opening a BUY position, ensure that the risk of price dropping to the previous lowest support level is well considered.
  2. SELL with Risk Up to the Highest Price:
    • When opening a SELL position, ensure the risk of price rising to the previous highest resistance level is considered.
  3. Balance Profit and Loss with Lot Size:
    • Ensure the lot size you use matches the account size and risk you are willing to take.
  4. Be Prepared to Face Floating Losses:
    • Prepare mentally and financially to handle floating losses if the price moves against your position.

Long-term trading is not a single solution for all traders, but with a good risk management strategy, you can leverage this approach to achieve consistent profits. The main focus of long-term trading is to keep risks within reasonable limits, and here are some key points to remember:

  • Use fundamental analysis to determine long-term potential.
  • Pay attention to highest and lowest prices and adjust lot size to manage risk.
  • Avoid common mistakes like opening positions without calculation and unnecessary hedging.

With the right approach, long-term trading can be a very effective and profitable strategy.


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