SCOTT WELSH TRADING BLOG

The Big Benefits of Long-Term Trading

The Big Benefits of Long-Term Trading

January 16, 2019

Last Saturday, I did an hour presentation on a long-term version of the Heron.

And it got me thinking.

As you may know, the original Heron is a short-term robot I built years ago that I trade with real money. (You can see my live results here.)

I tested the Heron exhaustively before I ever offered it for sale, and the research showed it should beat the market by a wide margin over a long period of time (a decade or so is a fair time period to use as a comparison).

Did the Heron beat the market last year?

Yes. It beat the market by about 11%. Which is great.

But before I go throwing any victory parades, the Heron was only up around 5% in 2018. (It was up big going into December, but things happen.)

Nonetheless, it did its job.

For a long time, though, I’ve been wondering about daytrading. While I love daytrading with a robot, it a lot of problems can come into play.

For example, on a 15M chart, every pip counts. If the spread happens to widen at entry or exit time, significant portions of profit can be lost.

Plus, you have to make a decision on what you do on Sundays. In EST, you have to decide to do it or not. In some parts of the world, you may not get Sundays at all. That’s kind of a hassle.

And there’s a lot of noise on a daytrading chart. Things can happen in the middle of the day that don’t mean much in the big picture. It’s not fun to take a stop-out on a momentary twitch.

That being said, my daytrading testing and live results have ended up agreeing. So I think I’ve handled it as well as possible up to this point.

But another thing was said in last weekend’s Forex event that I can’t get out of my head. In the first presentation, our host Boris said that all the big money is made on long-term charts.

Hmm. He may have a point.

As traders, what is it we want? When I get emails, what are traders most interested in?

Two things.

One, they want the big win. They want that life-changing windfall. They want to have a $2,000 account today, and then have a $20,000 account six months from now.

Well, how can we do that?

It probably won’t be from daytrading.

As great as it sounds, the idea of starting on a 5 or 15-minute chart and holding that trade for weeks might be an urban legend. I think it can be done, but I’ve never seen it done.

And I’ve never had testing prove it can be done on purpose. It’s easy to see big wins on a daytrading chart, but it’s extra difficult to make a system that grabs wins like that.

You know what does give us big wins, though? Long-term charts.

Looking for a 400-point win? It’s not going to happen between 1-3 pm on a Tuesday afternoon. It’s going to happen when you ride a trend for days or weeks.

The second thing traders want is for trading to allow them to retire.

Here’s the tough part. Let’s say you want a trading system to produce 20% per year, so you start researching.

After two years, you finally find a system that will do that consistently. Problem solved! Retirement is imminent!

And then you trade it live and spreads eat up profits on a consistent basis. Twenty percent turns into 3% in real life.

Or maybe you found a system but didn’t bother thinking about trading costs. A lot of educators don’t build that into their presentations, and so you don’t do it either.

Then you take a trade and the profits aren’t close to your estimates. The costs ate it all up.

Now a 20% system is a break-even system.

But you know what isn’t really affected by costs or spreads? Long-term trading.

Miss a pip on an entry on a Daily chart? No big deal at all. No trade costs built in? The estimates will still be close to the results because there are less trades and bigger targets.

I do love my daytrading robots, and I plan on trading them forever.

But if we want big wins that are impervious to slippage and trading costs, maybe we need to look in a different place.

Maybe we need a long-term portfolio.

We’ll start building one in the emails coming this week.

 

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.