In two-way forex trading, only traders who can withstand fluctuations of 50% or even higher in losses truly possess the fundamental qualities of a long-term investor.
Currently, most global forex trading textbooks advocate the principle of "no more than 1% stop-loss per trade." While ostensibly a risk control standard, this inadvertently encourages traders to frequently enter and exit the market, falling into the trap of short-term speculation and significantly compressing profit potential. In fact, by adhering to a long-term holding strategy and avoiding emotional trading and overtrading, most traders could avoid substantial losses.
However, many self-proclaimed "long-term investors," under the sway of the so-called "value investing" philosophy, exhibit clear blindness—they do not base their decisions on in-depth research and systematic judgment, but rather follow the crowd, hastily jumping on the bandwagon when they see a currency pair performing strongly recently; in recent years, as the concept of "value investing" has gained widespread market acceptance, they have flocked to so-called "value investing," completely lacking the cognitive foundation and psychological preparation necessary to practice value investing. True long-term value investors must possess the psychological and financial resilience to withstand significant price pullbacks—including drops of 50% or more. This is especially true in typical long-term strategies like carry trades, where the determination to hold positions long-term and navigate cyclical fluctuations is crucial. This "long-term struggle" is not passive waiting, but proactive adherence based on a thorough understanding of the macroeconomy, interest rate differentials, and market cycles.
Furthermore, long-term investors should consciously reduce their focus on short-term price fluctuations and cultivate a "no-watching" mentality. Excessive attention to real-time market data is not only unhelpful but can also easily induce irrational trading. It's important to understand that no long-term investor can accurately determine whether an entry point is at an absolute low; even seemingly undervalued currency pairs may decline further due to market sentiment or external shocks. Therefore, once valuations are confirmed to be reasonable or even low, decisive action should be taken—because the cost of missing out on an entire investment opportunity is far higher than buying at a "suboptimal price."
In the two-way forex trading market, the ultimate goal for the vast majority of forex investors is long-term investment, and the core of long-term investment is value investing.
From the perspective of investment awareness, very few forex investors establish a value investing philosophy when they first enter the market. Many haven't even heard of the professional term "value investing" during their initial learning phase. Their initial trading exploration often focuses on various technical indicators in trading software, typically starting with basic technical analysis, diligently studying candlestick patterns, moving average systems, and other technical indicators' application logic, attempting to capture short-term exchange rate fluctuations through technical analysis to generate trading profits.
However, forex investors often encounter a core dilemma in the initial stages: even after systematically learning various technical analysis methods and mastering the application techniques of different indicators, they frequently make decision-making errors in actual trading, resulting in volatile "profit and loss" patterns. They struggle to achieve stable profits and are constantly caught in the back-and-forth between gains and losses, failing to achieve expected returns and instead suffering from the psychological pressure of market fluctuations, becoming mentally and physically exhausted and trapped in a cycle of trading inefficiency.
The turning point for forex investors towards value investing often stems from this long-term market experience and trading inefficiency. When investors have experienced enough setbacks in the market and been tormented by the uncertainty of short-term trading to a certain extent, they will be more likely to relinquish their obsession with short-term gains and attempt to understand and recognize the core logic and trading system of value investing when a peer or experienced trader mentions the concept. In this transformation, investors who actively learn from the mature experience of seasoned traders will find that the vast majority of traders who have cultivated the forex market for many years and weathered market cycles eventually shift towards long-term and value investing. The core reason is that they are tired of the constant torment caused by short-term exchange rate fluctuations and yearn to escape the "constantly monitoring the market and experiencing anxiety" trading environment, seeking a more stable and sustainable trading model.
The core operation of value investing in the forex market lies in selecting high-quality currency pairs and holding them for the long term. Investors need to consider key factors such as global macroeconomic trends, differences in monetary policy, and exchange rate valuation levels. They should enter the market when currency pairs are in an advantageous valuation range, maintaining sufficient patience and composure when facing short-term pullbacks, not letting short-term fluctuations interfere with their judgment, and being able to tolerate the time cost of long-term holding. Once the exchange rate breaks through key ranges and enters a trending market, they should abandon the traditional logic of short-term stop-loss orders and instead lock in profits through profit-taking or hold long-term to share in the long-term gains from the trending exchange rate increase.
The core advantage of this value investing model lies in its ability to restore rationality to trading and normalcy to life. It frees investors from the anxiety of constantly monitoring the market and living in fear, eliminating the need to excessively expend energy on short-term exchange rate fluctuations. Investors can eat and sleep well, maintain a healthy lifestyle, and approach market volatility with a more rational and composed mindset, achieving a balance between trading and life.
It's important to clarify that value investing represents the highest level of investment in the forex market. Its core logic and operational discipline require long-term practice, trial and error, and experience in the market. Investors who haven't experienced a complete market cycle and lack sufficient trading experience will find it difficult to truly understand the essence of value investing, let alone implement its operational system. This is the core reason why forex trading novices often struggle to grasp the concept of value investing—understanding and practicing value investing is never something that can be rushed. It requires years of market experience, accumulating sufficient trading experience, and even two or three decades of dedicated cultivation and reflection before truly understanding its core principles and ultimately proactively embarking on the path of long-term and value investing.
In forex trading, there's no absolute right or wrong in adding to positions on breakouts or pullbacks; they essentially reflect different trading philosophies and risk preferences among investors.
Some forex traders tend to "add to positions on breakouts," believing that as the trend gradually solidifies, adding to positions in the direction of the trend helps amplify profits, especially in a clearly trending market. These traders are typically speculative, not fixated on absolute price levels, but highly focused on their account balance, strictly adhering to the principle of "trading based on capital," emphasizing a dynamic balance between position management and risk control.
Another type of trader prefers "adding to positions on pullbacks," aiming to average down their holding costs by adding to positions at lower levels, thereby achieving higher returns when prices rebound. However, this strategy requires substantial capital reserves; traders need to reserve sufficient funds to cope with the need to add to positions during sustained pullbacks. More importantly, the timing for adding to positions should not occur after a price breakout, but rather after the market enters a relatively undervalued area—after all, no one can precisely pinpoint the "lowest point." The so-called advantageous price is actually a relative value range, requiring a comprehensive judgment based on technical analysis, fundamentals, and market sentiment.
In general, both methods of adding to positions have their advantages and disadvantages, suitable for different market environments and trading styles. Breakout adding focuses more on short-term trend capture and profit efficiency, while pullback adding reflects a belief in long-term value reversion. Traders' choices should not be based on the inherent superiority or inferiority of the method itself, but rather on a deep understanding of their own market perception, risk tolerance, and investment philosophy. Ultimately, the key to success in forex trading lies in the consistency of strategy and philosophy, not in the correctness or incorrectness of a single operational method.
In the two-way forex investment market, for investors participating in trading, if they can abandon the speculative mentality of getting rich overnight, trading itself is actually a set of rational operational logic that can be followed and implemented, not a complex and difficult-to-understand game of chance.
In reality, many forex investors, regardless of whether the market is consolidating or trending, are obsessed with pursuing annual returns of doubling or even several times their initial investment. They often try to achieve profits of hundreds of thousands or millions in a short period with tens of thousands of dollars in capital. Such expectations, detached from market principles, are difficult to realize. Forex investors, if they cannot relinquish their speculative obsession with quick profits and exorbitant gains, it will be difficult to build a stable long-term trading system, let alone achieve consistent profitability.
In two-way forex trading, one of the core principles is "better to earn less than to suffer huge losses." A significant loss not only wipes out the investor's initial capital but also directly interrupts the accumulation of compound interest, which is crucial for snowballing returns in long-term forex investing. One of the core logics of the forex market is that profit and loss are two sides of the same coin; an investor's expected return is always directly proportional to their risk tolerance. Pursuing higher returns inevitably involves taking on higher risks, while reducing risk exposure means appropriately lowering return expectations. There is no absolute opportunity for high returns with low risk.
Even when established forex traders share their mature trading experience and rational understanding, investors with a gambler's mentality often find it difficult to accept. These investors' core motivation in forex trading is always quick riches and the realization of their so-called "wealth dream," ignoring the objectivity of the market and the rational nature of trading. They are unwilling to accept the core logic of "slow wealth," which is the underlying truth that persists in the forex two-way investment market.
In forex two-way investment, long-term investment often has an advantage over short-term trading for investors.
Importantly, each forex trader should choose an investment method that suits their own circumstances, rather than blindly following others' advice or simply following a trend because a certain method seems to be profitable.
Specifically, working professionals are usually not suitable for short-term trading that requires frequent monitoring due to time constraints. While short-term trading offers many opportunities, similar to playing mahjong, there are opportunities almost every day; long-term investment, on the other hand, is more like waiting for a goat to appear, which may take several years to find a truly exceptional opportunity. Therefore, short-term trading requires investors to possess superior analytical and rapid decision-making abilities, while long-term investing demands relatively less of these abilities but requires considerable patience and unwavering confidence.
In terms of returns, short-term trading may yield small but frequent profits, but it can also lead to losses due to misjudgments, much like wasting a lot of "ammunition" when hunting sparrows. In contrast, long-term investing, once an opportunity is seized, can yield substantial returns, like successfully hunting a goat.
For traders who wish to engage in both short-term and long-term investing, it is recommended to use a split-account approach, allocating funds to different strategies. Long-term investment accounts can focus on carefully selected currency pairs or carry trades, which emphasize long-term holding and confidence. Short-term trading accounts are more suitable for currency pair trading driven by short-term news events.
Finally, while using sparrows and goats as metaphors for short-term and long-term investing is meant to illustrate the differences, one should not fall into the extreme mindset of "fearing the goat will never come." Each investment method has its applicable scenarios and value; the key is to find the investment approach that best suits oneself.