Long-term macroeconomic trading is the big leagues of forex trading. It involves holding positions for weeks, months and perhaps even years at a time. Therefore, it is traditionally used for hedge funds and other institutions.
There are a variety of strategies used for putting long-term trading principles into practice. In long-term trading, macroeconomic trends are key factors to watch and evaluate.
When analyzing currency price trends:
Look for currencies that are either overvalued or undervalued by the major global trading powers.
Interest Rate Cycles
Evaluate where the two currencies’ relative interest rates lie and where they might go in the future months.
Economic Growth Cycles
Judge the likely economic growth in a country over the next many months. If a country’s economy is productive and evolving, interest rates are likely to increase along with the currency’s value. However, if a country’s economy is sluggish, the interest rates will most likely lower and the currency will be hurt as a result.
Structural Deficits or Surpluses
Search out major structural issues that might weaken or bolster the currency such as fiscal deficits or surpluses or trade deficits or surpluses.
Forex market traders tend to pick a trading style and stick with it. However, just because a trader prefers a long-term position doesn’t mean he can’t take advantage of medium-term price changes. Trading around a core position means taking profit on a portion of the overall position after favorable price changes. The traders will still hold a remainder of the core position during the trade and will reestablish a full position when it seems appropriate in the market.