Long-Term Trading

Long-term trading is where you open positions with the aim of holding for anywhere from several months up to 20 years or more. It is a viable approach for beginners and experienced traders alike with many strategies to choose from. Importantly, long-term trading can be an excellent alternative to keeping your money in a savings account and a low-effort way to beat inflation and profit from the rising tide of the economy.

This guide will list tips for long-term trading, from opening a brokerage account to strategies for stocks, forex, cryptos and other assets. Our tutorial also unpacks the best technical indicators, time frames, investing apps and long-term trading brokers in 2024.

What Is Considered Long-Term Trading?

A long-term trading strategy involves holding on to an asset for an extended period of at least a few weeks or months. The goal of the long-term trader is to identify a security, such as a FTSE-listed stock, that has the potential to grow steadily over months or years, or which could greatly increase in value under the right circumstances.

Typically, fundamental analysis forms a much larger part of strategies for long-term trading vs short-term day trading or medium-term swing trading.

Getting Started

Choose An Account

Before you think about the type of asset you want to trade, it is important to review the types of long-term trading accounts available and how each of these can benefit your financial goals and investing style.

Brokerage Account

Many retail traders choose online brokers as their gateway to long-term trading. These offer access to a wide range of assets and trading vehicles such as stocks, ETFs, and bonds.

Some brokers also offer trading products with leverage, meaning you can use a small amount of capital to open a larger position on an asset. Online brokers such as eToro also offer social trading, allowing beginner or time-pressed traders to copy the trades of an experienced investor.

Another benefit of brokerage websites is the widespread support for platforms such as MetaTrader 4 (MT4), MetaTrader 5 (MT5) or TradingView, the preferred tools of thousands of traders around the world.

ISA

An Individual Savings Account or ISA is a tax-free way for UK residents to save their money, and ISA Stocks & Shares accounts allow them to make long-term trading decisions with their cash.

With an ISA, any benefit the investor gains from their investment, including capital gains and dividend payments, is tax-free.

Most big banks and many financial service firms such as Fidelity offer ISAs. The list of assets and options available on a stocks and shares ISA is usually relatively limited, with many including ETFs and mutual funds rather than specific trading stocks.

If you want an ISA account you can buy shares in individual companies with, Freetrade is a good option. This is one of the few online brokers to offer an ISA, and it comes with a good range of stocks including some of the top performers on US stock markets.

Long-term traders could also benefit from a Lifetime Stocks & Shares ISA, which allows the trader to gain a 25% bonus of their savings of up to £4,000 per year. The money and bonus can be withdrawn when the investor buys their first home or reaches the age of 60; an early withdrawal will result in the loss of the bonus but not any profits made from the investments.

Pension

One of the oldest and most widely used ways to put your money to work in the long term is a pension.

In the UK, many people save for their pensions through workplace schemes, but you can also set up and invest in your own. One of the most popular ways to do this is through a Self-Invested Personal Pension (SIPP).

Like ISAs, SIPPs are free from capital gains and income tax, meaning that any money you make from your investments will be yours to keep. These investments also have the additional benefit of being eligible for tax relief.

This means that for every payment you make to your SIPP, the government will pay an additional 20%. Earners on higher tax bands may also be able to claim an additional tax rebate on their SIPP savings.

Choose A Market & Instrument

Once you have an idea of the type of accounts available, consider the different assets that are viable for long-term trading:

Stocks & Shares

Investing in the value of companies is a popular option for long-term trading. Through the London Stock Exchange, you can trade stocks of companies such as Unilever, HSBC and Glencore PLC.

With stocks and share trading, you need to consider the strength of the company by accounting for operational factors over the duration you hold the stock or position. For instance, the release of news and announcements regarding earning reports or new products and services.

With very long-term investments, you may also need to consider how the industry that the company is involved in could change over time. For example, consider any developments relevant to the energy industry when you are investing in stocks such as Shell.

ETFs & Indices

ETFs (exchange-traded funds) and indices are ideal for long-term trading. Both are instruments that are linked to the values of the holding companies and so are generally seen as less volatile than other markets and investments. The FTSE, for example, has followed an upward trend over the last 20 years.

FTSE Historical Price Chart

It is possible to find ETFs that track indices such as the FTSE 100 so you can trade long-term on the top 100 stocks on the LSE by market capitalisation. Other ETFs might track the performance of a sector, such as tech or energy; a country or region, such as China or Latin America; or commodities, such as agricultural products or minerals.

the LSE has over 2,000 ETFs available for trading and so it is possible to find an investment that is suited to your financial goals.

Cryptocurrency

Cryptocurrency is a fairly novel market to invest in but it poses an attractive option for long-term trading due to the possibility of large growth in just a short time. A prime example of this is Dogecoin, which increased from £0.006 in January 2021 to £0.4875 in May of the same year, representing an increase of more than 80 times.

Of course, this volatility is hard to predict as the value of certain tokens can seemingly be impacted by more random factors compared with other markets. For example, on the morning of the 29th of January 2021, Elon Musk added “#Bitcoin” to his Twitter bio, which led to the token’s value skyrocketing. On the 29th of January, BTC was trading at £25,000 and this increased to more than £41,000 over the next three weeks.

Commodities

Commodities have been used to make long-term investments for millennia – the first futures contract was written on a commodity – and they are still useful for long-term trading today.

The price of some commodities, such as gold and silver, tends to move in the opposite direction to the wider market, making these a suitable choice for long-term hedging purposes.

Other commodities, including agricultural products and some energy resources, operate on a cyclical basis with supply and demand being influenced by the seasons. These are also good candidates for long-term trades, especially if you are knowledgeable about the factors that can affect these commodities’ prices over months or years.

Derivatives such as CFDs are a popular option for retail traders who want to trade commodities as they allow for speculation on the underlying asset without needing to own it. With that said, overnight fees tend to make CFDs less viable over the long-term.

Alternatively, retail traders can invest in the shares of a company involved in producing the commodity, or in an ETF that tracks a particular commodity or sector.

Forex

Long-term forex trading usually involves speculating on the value of major, minor and exotic currency pairs, such as GBP/USD, though you may also be able to trade on a currency index, which tracks the performance of a single currency against a basket of currencies.

Long-term forex trading can sometimes amount to a bet on the performance of a country’s economy over a protracted period. You need to account for a range of factors in your strategy depending on the time frame you are trading, including the political situation and the economic strength of the countries involved in your trade.

A key example of this is the Brexit vote that took place in June 2016, after which the GBP dropped massively. At the beginning of June of that year, the GBP/USD pair was valued at approximately 1.448 however, by the beginning of November of the same year it had decreased to around 1.223.

Benefits Of Long-Term Trading

• Less exposure to the risk of short-term price swings
• ISAs and pensions are tax-efficient ways to trade
• Long-term stockholders benefit from dividend payments
• The best long-term trading systems produce consistent returns over many years
• Clients can trade stocks, futures, options, bonds & other products in the long-term
• Algorithmic trading strategies can reduce manual input, for example, on grid and mixed straddle setups
• Multiple technical indicators for long-term strategies, including moving averages, EMA and MACD settings
• Many brokers, platforms and websites accommodate long-term trading

Drawbacks Of Long-Term Trading

• Difficult to practice compared to shorter-term trading
• Hard to account for futures news and events which can impact an asset’s price
• Potential for a slower rate of returns vs short-term trading and mid-term trading

Long-Term Trading Strategies

Fundamentals

A fundamental long-term trading strategy involves researching the economic aspects of a certain instrument, asset or market. Depending on how you are trading and what the asset is, you will be investigating different factors.

Day traders need to focus on technical analysis of the factors that affect price action from minute to minute. However, longer-term traders need to know what is likely to move the price over weeks, months and even years, and this is where fundamental analysis comes in.

Fundamental analysis will depend on the asset you are trading, but generally demands research of both the specific factors affecting the company or commodity and the macro factors affecting the economy generally.

Position Trading

In position trading, you identify a trend and follow it by holding your position for months or even years. Position traders look for companies or other assets that they believe will consistently perform well and ignore short-term price movements.

Position traders will look for strong fundamentals – if they’re looking at investing in a company, they will focus on the company’s product, the size of the market and the management team, for example.

Identifying a position to hold in the long-term allows the investor to ride out volatility and benefit from capital growth and dividend payments.

Pound Cost Averaging

Many long-term traders and investors follow a strategy of pound cost (or dollar cost) averaging, in which they add a specific amount of cash into their investments periodically.

For example, a trader with a stocks & shares ISA might add £100 to their investments every month. This way, they don’t need to worry about the best time to open a position, as any time they overpay for the asset is likely to be balanced out by the times they buy it below the average price.

Long-Term Trading Tips

Economic Calendar

Having an economic calendar is useful for staying up to date with developments relating to your portfolio. If you are trading stocks, make a note of when the company will post earnings reports and other important announcements. For forex, you could make a note of when a country releases economic information such as inflation YOY and when the central bank makes rates announcements.

Research

Long-term trading strategies rely on careful research of fundamental factors. It’s a good idea to take into account both the specific details of the asset you’re trading and the macro factors affecting markets more broadly.

To help you learn, there are many resources available online. For instance, trading courses, YouTube tutorials, books, eBooks and PDF guides. You could also join trading communities on sites such as Reddit to seek advice on long-term trading strategies and potential assets.

Stay Calm

Traders should avoid letting their emotions influence their trading, particularly if they are interested in holding a position in the long term.

Many assets will swing into negative territory before recovering, and if you open a position and panic-sell when it goes red, you risk missing out on potential profits down the road.

Risk Management

All trades will carry at least some risk so while there is no way to guarantee returns for each investment, you can reduce your risk exposure using certain techniques.

A popular method for long-term trading is adopting the percentage strategy whereby you only invest a certain portion of your total capital in one trade. Short-term traders are advised to limit this to 1% or 2%, though long-term traders may wish to up this limit.

Adopting this measure may mean that your earnings from each trade are reduced but they can protect you from making big losses on a single investment.

Is Long-Term Trading Better?

Long-term trading is a difficult strategy but can be a viable way to take advantage of price changes of individual stocks and forex pairs as well as general industry trends. Using both fundamental analysis and technical analysis from indicators, you can map out trades far in advance and hold a position for years. This generally allows less stress and fewer time constraints vs short-term intraday trading and medium-term swing trading.

Use our table of the best trading apps for long-term investments to get going.

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