Best strategy for long term trading

Now, during a pandemic, the opportunity to earn money without leaving home is becoming especially relevant. This opportunity is given to us by trading on online platforms.

If you have not been involved in online trading before, then you do not know where to start and what to do in order not to lose your funds, but to multiply.

A trading strategy will help you with this.

Even a completely imperfect trading strategy, created according to a template in just a few minutes, can make your activity much more productive and organized. The truth is that the absence of any systematic approach is much more dangerous than using an imperfect or even a failed trading strategy.

Building a simple trading system based on the steps outlined in this article shouldn't be difficult for most beginners. 

But developing a professional strategy requires an order of magnitude more knowledge, experience and effort. As you go deeper into each of the components, there are many important details that require close attention. The responsibility for changing any parameter increases, as this can affect the efficiency of the entire system as a whole.

But do not be afraid of the difficulties and failures that will come along the way. It is impossible to immediately create a perfect trading strategy that would consistently bring profit. Start with simple steps. Step by step, you will improve your rules, explore new features and tools, and learn to improve overall efficiency by changing individual segments. Many attempts will build solid skills and experience that will lead you to amazing results. Fear not, start and you will succeed!

Determining the timing

The very first step in creating your trading strategy can be called determining the time frame in which you will work. This will largely determine your trading style, as well as the time and effort that will be required. In total, it is customary to distinguish three types of trading strategies:

• Short-term strategies.

They are often called intraday, since the opening and closing of transactions are carried out within the same trading day. For example, in the morning you analyze the market, make calculations and forecasts, open a deal, and close it in the evening of the same day. At the same time, this option can be called the longest, since most often transactions are closed after a few hours, and when using scalping techniques, the time from opening to closing a transaction can even be several seconds.

• Medium-term strategies.

Trading strategies in this category assume the duration of transactions from one or several days to a week. A trader has the opportunity to analyze the market for a rather long time, to consider the current position from several points. Most often, decisions are made on the basis of technical analysis, since the influence of fundamental (economic) factors on the market in this time frame is not so significant. But with proper preparation and experience, you can quite successfully use news reports and, on their basis, build trading tactics for the next few days.

When working with news, high speed and flexibility in making trading decisions are still important here, but in comparison with short-term trading strategies, the working rhythm can be called much calmer.

• Long-term strategies.

Within the framework of long-term trading strategies, positions remain open for from one week to several months or years. Making trading decisions is most often based on fundamental factors, each of which is carefully analyzed. This type is most preferable for strategic investors who aim to work with long-term market trends.

It should be emphasized that long-term strategies are most often the choice of the investor, not the speculator. The latter is focused on quick profit and is not interested in the prospects of long-term work with a trading instrument.

So, you have familiarized yourself with the main types of trading strategies based on the duration of a position in the market.

According to experienced traders, if there is a choice, it is better to use medium-term and long-term strategies, because they allow you to make more accurate forecasts, use fundamental analysis, and get much more profit.

Let's say you have chosen long-term strategies for yourself.

Now let's move on to choosing your best long-term trading strategy.

The main components of a trading strategy

The trading system must contain the following necessary elements:

1. Type of trading system.

The type of trading system is determined by three main elements:

• The time period in which the trading system works: we have already chosen - this is a long-term trading strategy.
• Method of information analysis: here the important point is the type of analysis used - technical or fundamental.
• Trading formation: trending, counter-trend or flat.

2. Signal to enter a trade.

The signal is determined by the values ​​of the indicators that the trading system uses in its work. Signals neutralize the human factor of making mistakes for a more accurate entry into the market.

3. Filtering signals.

The most famous signal filters include the RSI, Stochastic, CCI indicators. For example, they do not allow opening trend trades when flat, or they allow you to choose the strongest signal.

4. Money management (money management).

A well-tuned capital management system will correctly determine the ratio of the profit made to the level of acceptable risk, determine the lot size for opening a deal.

5. Risk management.

"Cut the losses, the profits will take care of themselves".

The essence of risk management boils down to securing the transaction. This includes take profit and stop loss orders. Also, the trading system can move deals to breakeven, or close deals on time.

6. Signal to exit a trade.

An exit signal is similar to an entry signal, everything is simple: if the indicator shows a signal of the end of the movement, exit the trade.

Simple long term trading strategy. Elder's Three Screens Strategy

This classic trading strategy was developed by the famous trader Alexander Elder back in 1985, which is still relevant today. The strategy itself is very simple, but at the same time quite effective, for which it is popular with many, including professional, traders.

So, from the name itself it is clear that the strategy uses three time frames (screens). Any time frame can be used: i.e. the strategy will be relevant for long-term trading, intraday and scalping. It is important that each subsequent time frame is about 6 times smaller than the previous one.

For long-term trading, we use the periods W1-D1-H4. More accurate signals will be on long periods, but their number will be less.

This strategy is indicator and includes the following standard indicators: stochastic, MACD and moving average (MA).

Asset Allocation

Investment strategy with different classes of instruments. There is no single trading scheme that rigidly stipulates - this is 5%, that is 7.5% and not a gram more. Forming an investment portfolio in this strategy is similar to the approach of an artist - a lot depends on inspiration and goals.

The main thing is risk diversification. The ideal situation is when the portfolio assets are not correlated with each other, the correlation is negative. At the same time, the movement of one does not automatically pull the price of the other. But in reality this is impossible: the correlation is taken into account, as far as possible, minimized.

Old fact: gold is an indicator of fear. When the market falls, the precious metal often moves in opposition to the stock market. Stocks are falling, gold is rising. Simple trading strategy.

There is no strict list of assets for building a portfolio in the stock market. This:

• Stock market instruments - stocks, bonds;
• Shares of funds, ETF;
• Commodity assets;
• REIT funds and sometimes real estate;
• Cash, currency;
• Derivatives on underlying assets - from the stock market to dairy products.

The list can be expanded indefinitely. The approach to portfolio formation is flexible. 

The general point of the trading strategy is the distribution of risks and expected returns.

Dividend strategy

Based on the payment of dividends by companies. We are interested in those who pay dividends regularly. The amount and terms of payments are determined by the shareholders. This happens once a year, less often - six months or three months.

Technology for receiving dividends:

• Date of cut-off of shareholders. It is known in advance and follows the reporting period. At the time of cut-off, in order to receive dividends, the shares must be on the account. It is not necessary to hold shares for the entire previous year, you can buy a few days before the cutoff and sell immediately after it.
• After the cut-off, no later than two months, shareholders meet and approve the amount of payments. Average size is from 1 to 9%.

The usual practice of dividend stocks in the market is that before the cut-off, the value rises, after it - the fall. If you bought just before the rally cutoff, then sold, the dividend size may not cover these jumps. This is always an additional risk in the stock market.

How to choose securities with the best dividends?

Issuers are required to post information about "material facts". This includes decisions of the board of directors.

55 days before the meeting, at which the cut-off date is determined, they decide on the payment or absence of dividends, preliminary amounts. This gives time to analyze and buy in advance. In addition, two to three weeks pass from the meeting by decision of the date to the very cut-off. This is additional time to think about whether it is worth participating in the stock market dividend race.

Long term value trading strategy

A strategy based on undervalued market assets. Trade investment horizon - a year or more. The investor himself determines the evaluation criteria below the market - based on experience, insider information or fundamental indicators. The last trading approach is based on fundamental analysis ratios.

Some of them:

• EPS - the ratio of net profit to the number of shares, that is, how much you can earn on one share. A key parameter for building a strategy.
• P / B - the ratio of the value of a share to inventories. Stocks - balances of materiel after debt repayment. If the parameter is less than 1 - the company is underestimated, from 1 to 2 - a fair estimate,> 2 - overestimated.
• EV / EBITDA - gives a quick assessment of revaluation or, conversely, in comparison with competitors. Shows for what time period the company's profit unspent on amortization and payment of interest and taxes will pay off the cost of its acquisition.

Growth strategy

Another strategy long term trading  is based on the assumption that the value of securities in the stock market will rise. The starting point for making a decision can be:

• Fundamental indicators;
• Insider - information available to a limited circle of persons that can change the value of assets;
• There is a long-term uptrend.

The decision to buy can be made with fundamental ratios showing the revaluation of trading assets in the market.

The choice of a trading strategy depends on your preferences or the specific situation in the market. Knowing the chosen trading algorithm will allow the trader to open the correct position that will bring him profit in the stock market. Decide for yourself which is the best long term trading strategy for you.

How to start applying your best strategy for long term trading?

For your investment to be completely safe, you need this to work with a reliable and proven trading platform. A good broker's platform is licensed and completely fraud-proof.

How to start working on the platform?

Registration on the platform

Visit the official website of your chosen broker and do the following steps:

• Enter your name and email address.
• Wait for the confirmation email.
• Follow the link provided in the email.

Although you are planning on using a long-term trading strategy, practice using short-term trading strategies first. To do this, open a demo account.

Demo account 

Just click "Open Demo Account". You will be credited with a certain amount of fictitious funds for test work.

That's all, you can start working on your practice account.

Real account

To open a live brokerage account, make a minimum deposit provided on the platform. You press the "top up" button in your personal account, and the system will tell you what to do next:

• You need to choose a convenient payment method, whatever it may be, be careful when filling in the details;
• You can choose from several different payment methods, and on the major online trading platforms, you can deposit with a credit or debit card, as well as through well-known payment systems;
• Money is usually deposited into your account immediately and you are ready to invest.

Be sure to try it and you will succeed!