Saxo Group
Building a portfolio requires an understanding of the securities you can trade and time frames. Focusing on different time frames for different securities can help you create a diverse portfolio that may allow you to overcome short-term volatility and make long-term gains.
As with all things in trading, nothing is guaranteed. Holding securities for long or short periods of time carries a certain amount of risk.
By learning how to make moves in the short, medium and long term, you can give yourself the best chance of riding the ups and downs of trading. Let's explore what medium-term trading is and how it compares to other time frames.
Trading typically takes place over three specific time frames: short, medium and long-term. Each one is a generally accepted length of time, but it’s important to note that context matters. These time frames change depending on the financial instrument you're trading.
Aside from the fact some securities are more suited to certain time frames, time is relative. For example, forex is a market that’s notorious for rapid price changes. This means that prices can change over 24 hours. Therefore, a day in forex is relatively long in that context.
Contrast this with stocks that, in general, don’t fluctuate as wildly. Yes, stock prices change over a day but, overall, the swings are usually less dramatic than they are in forex. Therefore, in this context, a day isn’t necessarily a long period.
So, when you’re thinking about time frames, it’s important to remember that the number of days/months can vary based on the security you’re trading. Having said this, there are some periods of time that traders will consider depending on when they’re using a short-term, medium-term, or long-term strategy.
Short-term trades are usually held for a day but not more than a week. In some contexts, such as the forex market, short-term trades can be measured in minutes.
For example, scalping is a trading strategy that aims to capitalise on small market movements. Scalpers enter trades multiple times per minute/hour and exit when the market moves in their favour.
A stock trader won’t use such a high-frequency strategy. A short-term position in stocks could be a few days or a week. Whatever the specific time frame is, the point to keep in mind when it comes to short-term trades is that you’re not aiming to hold a security for very long.
You want to get in and out quickly to take advantage of short-term price fluctuations. Because of this, technical analysis, which looks at past and present price data, can be useful.
Mid-term trades are typically held for a few days or weeks, depending on the security. A forex trader that holds an overnight position will be moving away from a short-term strategy and focusing on medium-term positions. Trading stocks and commodities in the medium term is when a trader holds a position longer than a week.
Mid-term trading can sometimes be less resource intensive than short-term trading. You often need less capital if you want to take medium-term positions than if you were using a short-term or long-term strategy.
This is because you’re not trying to capitalise on volatile markets by moving into and out of multiple positions per day. Similarly, you’re not tying up capital for long periods of time like you would with a long-term strategy.
You can also take a mixed approach to analyse the markets. Because you’re basically straddling the line between short and long-term trading, you can use technical analysis and fundamental analysis.
The former can help you identify potentially profitable positions and potential market movements in the coming weeks/months.
The latter helps you establish the fundamental value of the asset and its potential regardless of market conditions. This can help you determine whether it’s worth holding for a meaningful period of time.
Long-term trading could be defined as any length of time that’s longer than a mid-term trade. However, if we’re going to be a bit more specific, longer-term trades usually require you to hold securities for months or years.
Again, context matters. Long-term forex trades could mean holding positions for a month. With stocks and commodities, you could hold positions for 10 years. The main thing here is that long-term trades are held for extended periods, and sometimes you’ll hold them indefinitely.
For example, if you take a long position on shares in a start-up because you believe it will become a global company in the future, you wouldn’t close the trade. Why? Because, if you’re correct, any short-term fluctuations will be forgotten when the company goes global and returns a significant profit.
This line of thinking means that fundamental analysis can be more useful than technical analysis. Because technical analysis uses past and current price changes as the basis for buy/sell orders, it doesn’t have as much relevance when you’re looking at the overall value of a security.
Long-term traders focus on the fundamental (intrinsic qualities) of a security, i.e. fundamental analysis.
The time frame you choose will depend on a variety of factors, some personal and some technical. For example, if you’re fairly risk-averse, long-term trading might be the best option.
If you’re trading in a volatile market such as forex, holding a position for a year might not be suitable. So, you need to consider what you want to get from trading and the securities you’re trading.
We can’t tell you which way to trade. We can tell you it’s possible to do any or all of the trading strategies we’ve outlined if you’re knowledgeable and confident enough. For example, if you want to create a diverse portfolio which utilises medium-term and long-term trades, that’s fine. However, before you make these decisions, you need to ask and answer these types of questions:
How much starting capital do you have? Those with more money set aside for trading may be better equipped to handle the potential swings of short-term trading. Those with less starting capital might be better suited to more stable trading strategies with a mid-term focus.
How much volatility are you willing to accept? In general, short-term trading can be more volatile. Some short-term trading strategies, such as swing and scalping, actively rely on volatility. Although long and medium-term trades can be volatile, short-term swings aren’t usually as significant because you’re focused on future profits.
How much time do you have? Long and medium-term trades aren’t as time-sensitive. You can enter a position and let it run without monitoring it every hour. This isn’t possible with short-term trading. Some strategies require you to make multiple moves per hour, which means you constantly have to focus on price charts.
What are you going to trade? Some securities are better suited to short-term trading, others are more suited to long and mid-term trades. Some securities that medium-term traders tend to focus on most are stocks, commodities, and ETFs.
There are no strict rules on what you can and can’t trade using a certain strategy. As we’ve said, you could use a long-term strategy in forex. Similarly, you might want to trade stocks using a short-term strategy if the market is volatile. However, these are exceptions to the rules.
It’s best to focus on securities that are comparatively stable when you’re considering a mid-term trading strategy.
The steps below should help implement a medium-term trading strategy for your chosen securities. It’s not a guaranteed way to make a profit, but is a framework within which you can plan your strategy and start trading with a mid-term focus:
You can create a demo account at Saxo and use a virtual bankroll to trade in a risk-free way. The demo account doesn’t allow you to make any cash profits. However, you get to experience live markets as if you were trading with real money. This is a great way to see which securities you prefer. You can also use our trading guides to get insights into how the financial markets work.
Once you’re ready to make real-money trades, you can verify your account by confirming various personal details. From there, you can make a deposit. The amount you deposit needs to be within your own limits. You shouldn’t trade with money you can’t afford to lose.
The amount you deposit should also take into consideration your medium-term strategy. You need enough money to facilitate multiple trades. So, you need enough free capital so you can hold certain positions and have money available when new opportunities present themselves.
This is a critical part of the process. You need to research the securities you’re going to trade in before you open a position. This research should combine technical analysis and fundamental analysis. Technical analysis looks at recent price data and chart patterns (formed through price movements).
Fundamental analysis looks at the core qualities of the asset you’re trading. For example, if you’re trading stocks, you need to look at earnings reports, current market conditions, company updates/news, and analyst estimates.
Your job is to collate all of this information and tie it together. This will not only give you an idea of which securities might have the most potential, but how long you should hold a position. Plus, your analysis can tell you whether it might be worth taking a long or short position.
You can read our guide to going long or short for a detailed explanation of what these terms mean. For now, just know that going long means you’re taking a buy position because you believe the security’s value will increase. Going short means you’re taking a sell position because you believe the security’s value will decrease.
When the analysis is done and you’ve chosen the securities you’re going to trade, set yourself a general time limit. These time limits can change based on market conditions. However, you should have a general idea of how long you’re going to hold each security.
The last step in any mid-term trading strategy is to open your trades. You can use risk-management tools such as take-profit and stop-loss limits to help manage your assets. Once you’ve set any limits and opened the trades, the only thing left to do is sit back and wait. However, and this is important, stick to your plan.
Unless there are exceptional circumstances, you shouldn’t change course too dramatically. If you’re aiming to execute a mid-term trading strategy, stick to it. Still, the market can be dynamic, so it's important to re-evaluate your plan frequently. It's OK to change your mind if there are exceptional circumstances.
This is important to remember because there will be ups and downs in trading. If you’re aiming to hold stock for at least two months because you believe the market is going to go in your favour, don’t let a 24-hour dip scare you.
To put it another way, don’t let short-term thinking affect your medium-term trading strategy. If you can keep this in mind, as well as the other advice we’ve offered in this guide, you should be well on your way to holding positions for more than a day.
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