The forex market can be viewed in limitless ways and traded in unquantifiable combinations, but there will always be the long and short-term view. There are a large number of different approaches to trading, and traders can sometimes feel confused or clueless when determining which approach to use at the beginning of their careers. But the good news is that you can group all the trading styles and strategies into two groups based on their timeframe, and get a good idea on whether they will suit your requirements and expectations or not.
It is difficult and impractical to use fundamental analysis in short term trading where the course of a trade is a few hours or few days. Thus, short-term traders are usually limited to using technical strategies for analysis and strategies. Long-term traders on the other hand can choose to focus on fundamental or technical approaches while formulating their strategies, and the added dimension of flexibility does translate to greater insight and better profits in due time.
One of the main advantages of long term trading is you aren’t required to find new opportunities every day. Finding good trades is the hardest aspect of trading because no-one knows how price will develop in the future. When trading long term we can stick with the winners – rather than cashing out and having to look for a new opportunity. Every year there are a few good trends across the asset classes. Once we find them we need to stick with them as long as we can and extract as much from the trend as we can.
Short term strategies usually involve the opening and closing of positions in as little as 5 minutes, at most a week. In many cases, technical analysis is the main tool of the short term trader. It takes a considerable time for GDP or NFP releases to impact underlying economic events analyzed by fundamental studies and as such, fundamental tools have little value in evaluating short term events. However, technical strategies are ideal for trading in volatile, changeable market conditions.
Due to the necessity of combining many diverse types of data from different sources of varying credibility, beginners choose to ignore fundamental analysis in formulating their strategies, and confine themselves to the technical approach. Although this is a valid method, it is difficult to gain the degree of confidence granted by fundamental analysis through the use of technical tools alone. The outcome for such traders is that it is quite hard to hold positions long enough to reach the degree of profitability that long-term trading can allow its persistent practitioners.