Medium-Term Trading

Medium-term trading typically involves opening and closing positions within the space of a few days up to several weeks. Medium-term traders generally use a mixture of fundamental and technical analyses to speculate on popular assets such as stocks, forex and cryptos. This guide to medium-term trading list the best strategies, suitable markets and options, key trading terminology, and tips for beginners. Use our ranking of the best UK brokers for medium-term trading to get started:

What Is Medium-Term Trading?

Mid-term trading, also known as swing trading, involves holding positions for a moderate timeframe, which can vary depending on the asset you’re trading. Generally, traders can think of the medium term as longer than a day and no longer than a few months.

A key benefit of trading over a medium timeframe compared to short-term trading is that traders can escape some of the noise and elevated risk of the seemingly unpredictable swings that can define day trading. This is because the medium-term focuses on trends that have had time to develop and become sustained, rather than short-lived price action.

Medium-term traders can benefit from both chart-based technical analysis to identify trends and predict levels of support and resistance and from fundamental analysis of a particular asset, news events and macro factors.

Medium-Term Trading Strategies

Two popular medium-term trading strategies involve analysing momentum and looking for pivots in a trend direction:

Momentum

A medium-term momentum-trading strategy involves catching trends with the potential for strong momentum as they begin. For instance, when a stock is undervalued and beginning to pick up strong momentum, you could go long assuming the trend will continue with more traders also looking to buy.

To improve your chances of success, you need to be able to identify genuine instances of strong momentum, which requires experience and research – not all upward movements in price are indicative of strong positive momentum. Technical indicators such as Bollinger Bands and the Stochastic Oscillator can help to identify the strength of trends.

To demonstrate how this could work, let’s look at an example with the Stochastic Oscillator. The image below shows a price history chart for Rolls-Royce between 30 January and 1 February 2023. Around 2:30pm, there is a bearish crossover as the purple ‘fast’ line drops below the black ‘slow’ line in the overbought region of the Stochastic chart. This provides a sell signal that there is strong downward momentum, making it a good time to open a short CFD, for example.

Following this, the price drops from around 109GBx to a low of 103 GBx just after 8am on the 1st. Before this point, there is a bullish crossover in the oversold region, implying the stock is now undervalued and likely to rebound. This gives a signal to close your short position.

Pivots

A medium-term pivot trading strategy involves identifying instances where the trend direction is likely to reverse. In essence, you are looking to identify the upper and lower levels of a price range – known as resistance and support, respectively. This is sometimes called range trading as you aim to buy the asset at the support level and sell at resistance, profiting from the range between these two levels.

To show how this would work, below is an example using NatWest stock between 18 and 21 December 2022. As the image shows, you can see that leading up to the market close on the 18th, the price was trending downwards. After the market opened the following day, the price fell below the first support line.

At this point, range traders may assume that the price was set to reverse and consequently open a long position, and in this case, the price did increase. With the pivot strategy, the best time to close your position is usually when the price reaches a resistance line.

Medium-Term Vs Short-Term Trading

There are several reasons that many traders favour mid-term trades over short-term trading. The longer timeframe allows for trends to develop, meaning traders can bring in some fundamental analysis. And, with more time to plan and execute trades, this can be a more relaxed style of online trading that suits retail investors with limited time to analyse charts between their day job and other responsibilities.

However, there are some downsides. Keeping a position open overnight with CFDs and other derivative products can invoke holding fees, and with time these will add up. The longer timeframe also means traders often make fewer trades than day traders. Depending on the trader’s wallet management, this can either mean you have a lower profit potential or a higher level of risk per trade.

Pros Of Medium-Term Trading

• Long enough timeframe to allow trends to develop
• Multiple mid-term trading brokers to choose from, including firms with promo codes
• Can trade many markets and assets at once, including stocks, forex, commodities and cryptos with growth potential

Cons Of Medium-Term Trading

• Swap fees for derivatives that are held overnight
• Medium-term traders wait a longer time for returns compared to short-term trading
• Less frequent trades may mean you need to open larger positions, requiring greater investments

How To Start Medium-Term Trading

Choose An Asset

The following are all popular asset classes for medium-term retail traders:

Stocks & Shares

A popular option for medium-term trading is investing in stocks. For UK-based companies such as HSBC, BP and AstraZeneca, you can expect to find their stocks on the London Stock Exchange, which trades between 8am and 4:30pm, Monday to Friday.

Many online brokers also provide access to US and other international stocks, which will trade according to the hours of the local exchange.

Forex

Forex is also widely used with a range of vehicles to trade with and plenty of viable strategies. FX trading involves exchanging currencies through major, minor and exotic pairs like the GBP/EUR and aiming to profit from one currency strengthening or weakening against another.

Some traders also speculate on a more objective measure of a currency’s value using a currency index, which weighs it against a basket of other currencies.

Cryptocurrency

Cryptocurrency markets are highly volatile, making them a risky but potentially lucrative asset to trade on an intermediate timeframe. Traders looking to benefit from mid-term price movements should look at both technical analysis and factors affecting cryptocurrency market sentiment, including news events on regulations, scams and fresh blockchain projects.

Commodities

Commodities are a good choice for medium-term trading as they are accessible with many online brokers available to UK investors. Generally, commodities are traded 24 hours a day between Sunday evening and the following Friday evening with one-hour breaks each day, though individual brokers may set their own hours.

Medium-term commodities investors can trade based on analysis of price action on charts, but can also benefit by making forecasts on relevant upcoming news events.

ETFs

Exchange-traded funds are investment vehicles that provide exposure to a range of assets, usually grouped by exchange, sector, country or asset type. Many medium-term investors favour ETFs as the selection of assets reduces volatility and risk.

Your medium-term trading strategy will depend on the type of ETF, but generally, you can expect less-drastic price swings than many other instruments. ETFs are a mainstay of pensions and ISA investment accounts that favour long-term trading strategies, but they can also be used as the underlying assets in CFDs, making them a candidate for medium-term trading.

Choose A Broker

Most online brokers will accommodate medium-term trading, so you should have a good range of options. The best broker for you will depend on the type of asset you want to trade, but there are some common factors to consider:

• Trading platform – Choose a broker which supports a quality trading platform such as MT4 or MT5, or a good proprietary solution. Look for customisable charts, a breadth of analysis tools and indicators, plus multiple order types.
• Markets – If you want to trade commodities or US stocks, you will need a medium-term trading broker which offers access to these markets.
• Trading vehicles – Whether you want to trade CFDs, spread bets, binary options or spot, you need to choose a brokerage that supports these instruments.
• Fees – Most investors look for medium-term trading brokers with the lowest fees, but take care not to compromise on other important features. Also check the minimum deposit requirement alongside overnight holding fees if using derivatives like CFDs
• Payment methods – The deposit and withdrawal methods can make a big difference to traders if they want to avoid additional charges or transfer cash from overseas. Popular deposit solutions include bank cards, wire transfers, and e-wallets.
• Education – The top medium-term trading brokers offer training materials for beginners, plus expert takes on current market events and different assets.
• Mobile app – Is there a free mobile app available on Apple and Android devices? This will allow medium-term traders to monitor positions and trade setups over the course of several days or weeks.
• Regulations – Ensure that you trade with a reputable broker that is overseen by a respectable regulator such as the UK’s Financial Conduct Authority (FCA).

Tips & Tricks

Evaluate & Manage Risk

When you are medium-term trading, you should have a clear understanding of your risk appetite. It is key to be able to weigh up the potential profits against losses and, using this knowledge, to judge whether a swing trade makes sense or not.

Traders can use risk management techniques such as stop loss and take profit orders. A stop loss is a trigger that will automatically close your position when it hits a certain level of loss. This is particularly important in leveraged trades, which can wipe out unlucky traders during volatile periods. A take profit is a trigger that secures profit from a winning position, ensuring that you lock in returns before a reversal.

Use Education

Whether you are a novice or an experienced medium-term trader, you should aim to continually increase your knowledge. This could involve studying resources that deal generally with analysis and chart-reading or learning about the specific markets you wish to trade, such as gold.

Numerous resources are also available online, including PDF guides that discuss and define medium-term trading terminology for options and CFDs amongst other investments. You can find books, ebooks, YouTube videos, training classes and tutorials online with in-depth analysis and helpful advice for traders of all levels, including how to pick stocks for medium-term trading.

Build Up Experience

Demo accounts are a useful tool to help you prepare for medium-term trading. Many brokers offer paper trading accounts for free, loaded with simulated funds so you can practise your medium-term trading strategy as much as you want. These are excellent for testing out any new indicators you want to use, getting to grips with a new platform you have not used before or simply building up good habits.

Note, medium-term brokers may only offer a trial account for a finite period, for example, one month.

Bottom Line On Medium-Term Trading

There are multiple reasons to trade with a medium-term outlook, and for many investors, this is the ideal timeframe that allows for a decent volume of trades while mitigating some short-term volatility. Many also favour the medium term for its mix of technical fundamental and technical analyses when researching a position, though this can be difficult to get right.

Medium-term traders should take plenty of time to understand their target market and strategy. They should also implement reliable risk management techniques to mitigate their losses and protect their profits.

To get started, sign up with one of the best brokers for medium-term trading.

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