Medium-Term Trading
Medium-term trading is an often overlooked but potentially lucrative time frame for savvy traders. In this guide, we list the best instruments for medium-term trading, alongside definitions, popular strategies, and tips on navigating this time frame. Our experts have also reviewed and ranked the top brokers for medium-term trading in 2024:
Best Brokers For Medium-Term Trading
What Is Medium-Term Trading?
So, how long is the medium-term when it comes to online trading?
Definitions vary, and what is medium-term in the stock market is not always the same as what is considered medium-term in other markets and trading vehicles, such as binary options or bonds.
However, a sensible definition of medium-term is a trade that is open for between several days and a few months.
This excludes popular approaches, such as a 2-minutes or 3-minutes day trading and scalping strategy. On the other end of this time scale, strategies in real estate and most fundamental or “value” trades in the stock market will exceed the medium-term cut-off.
Best Medium-Term Trading Instruments
While most trading instruments are theoretically available for medium-term trading, some investment vehicles and markets are better suited to this time frame:
Stocks
As one of the easiest and most versatile trading vehicles, spot equities are well-suited to short, long and medium-term trading.
Stocks boast high liquidity, simplicity and an abundance of global markets to choose from. Trading shares is also highly accessible through a range of online brokers.
There are plenty of medium-term stock trading strategies to base your approach on, and the risk is arguably lower than with leveraged derivatives.
Medium-term trading opportunities are also plentiful due to the mix of fundamental, economic and performance-based price determinants in the stock market.
ETFs
Exchange-traded funds, or ETFs, are another versatile trading vehicle. They track the performance of themed collections of stocks, commodities, cryptocurrencies or other assets.
With thousands of funds available, ETFs are a relatively low-cost, low-risk and accessible form of investment for medium-term trading.
ETFs are also better suited to medium-term trading than mutual funds meaning they can be bought and sold at any time during the trading day.
Futures
Another popular medium-term trading instrument is futures. Futures are dated contracts that lock in asset prices months or even years in advance of their expiration date. Common futures markets include commodities, indices, stocks and currencies.
While not as accessible, or beginner-friendly as stocks and ETFs, futures offer advantages such as leverage and heightened sensitivity to market stimuli. Futures are also highly liquid with an extensive range of commodity assets available.
Options
Our final medium-term trading instrument is options. Options are contracts that allow investors to purchase or sell various trading assets such as stocks or metals, or instead opt for the cash equivalent of their trading profits or losses.
While long-term trading with options can be expensive due to a phenomenon known as “theta decay”, medium-term trading is less affected by this.
Other Trading Vehicles
There are several alternative instruments that, although are less suited to this time frame, can be profitably traded in the medium-term:
Forex & CFDs
When forex or CFD trading, investors may be tempted to let a profitable trade run into the medium-term for extra gains. However, swap fees for maintaining positions overnight can soon add up and eat into profits.
For this reason, medium-term forex trading strategies are less popular.
Crypto
While mid-term cryptocurrency trading can be lucrative, this is a less suitable time frame for this market.
Short-term trading allows investors to take advantage of the renowned volatility of digital currencies while investing based on crypto staking or fundamentals is best suited to long-term trading.
Bonds
Bonds are primarily used as assets to add stability and diversification to a portfolio rather than as medium-term trading instruments.
Binary Options
Most binary options brokers offer short-term contracts that span minutes and hours. There is a limited list of trading platforms where you can buy binaries that last weeks or months.
As a result, binary options are best suited to a shorter trading time frame.
Fees & Commissions
The implications in terms of fees when trading in the medium-term differs significantly based on the type of instrument.
For example, medium-term CFD trading will incur substantial swap fees for holding positions over multiple weeks or even months.
However, for assets such as cryptos, stocks and ETFs, many brokers charge a commission or flat charge for every purchase and sale. In this instance, focussing on medium-term crypto or share trading will reduce fees compared to more frequent shorter trades, but charges will be higher than with longer investments.
Pros Of Medium-Term Trading
- Avoids PDT Restrictions – Trading in the medium-term allows US investors to avoid the restrictive rules on pattern day trading.
- Predictable Markets – The medium-term often offers a stable and predictable market environment for online trading vs short-term strategies.
- Research & Analysis Time – Swing trading in the medium-term gives traders the time to be proactive rather than reactive in the markets.
- Range Of Viable Instruments – The medium-term time frame is compatible with most trading instruments, including stocks and ETFs.
Cons Of Medium-Term Trading
- Opportunity Cost – Holding positions in the medium-term time frame means that funds are often tied up in trades and not available for new trading opportunities.
- Limited Strategies – Systems such as dividend investing, crypto staking, bond purchases, scalping and day trading are not usually good medium-term trading strategies.
- Higher Fees & Commissions – High overnight swap fees make a medium-term forex or CFD trading strategy largely unviable.
Medium-Term Trading Strategies
Looking for trading strategies on how to pick stocks or other assets for medium-term trading? Here is a list of ideas for medium-term swing trading:
Rumour Trading
News is one of the driving forces of asset prices across many markets. And while the high short-term volatility of breaking news is often thought of as the most potent, trading based on rumours can lead to medium-term trading opportunities.
Traders can create medium-term stock trading strategies based on rumours such as impending employee layoffs, company takeovers, dividend raises and share buybacks. Heightened global or regional political tensions can also be a trading signal, with the escalation of these tensions causing massive market changes such as the increase in 2022 commodity prices caused by the Russia-Ukraine conflict.
Mean Reversion
Mean reversion trading involves purchasing an asset or security that has deviated in the short term from its historical market average. Investors then bet the asset will return to its historical trend line in the medium-term once the short-term volatility passes.
Momentum
However, if an investor believes that the cause of a short-term fluctuation has longer-term implications, they can make a medium-term trade based on this momentum.
An example of this would be an overperformance of earnings predictions for a company. This will have a short-term effect, but if this is due to a sustainable positive change in business practice, a stock may experience further medium-term growth after this initial increase.
Overbought & Oversold
Trading assets that are overbought or oversold relies more on technical analysis than fundamentals or news.
Investors can use indicators such as the relative strength index (RSI) or stochastic tools to create signals for these situations.
Tips & Tricks
- Price Alerts – For most non-professional traders, it is impractical to monitor assets in the medium-term constantly. Therefore, to help keep on top of positions, set up price alerts for open or prospective trades. Many trading platforms also have mobile apps to help you get alerts on the go, or investors can download proprietary solutions for medium-term stock and share trading prices.
- Stop Losses & Take Profits – The next step in hands-off medium-term trading is setting price limits where your position will be automatically closed. Dynamic tools such as trailing stops can take trade automation to the next level and help traders maximize profits or minimize losses.
- Fund Allocation – When medium-term trading, it is likely that your funds will be held in positions for several weeks, if not months. For this reason, a money management system is important so that you do not have to close a position early to take advantage of a new trading opportunity. Split your capital into predetermined stakes, depending on how many trades you are planning or willing to open and monitor. Also, avoid putting all of your funds into one or two trades.
Final Word On Medium-Term Trading
There are multiple medium-term trading strategies available when investing between several days and a few months. However, this time frame can be seen as an in-between phase, with neither the volatility of the short-term nor the compounding and dividend potential of the long-term.
Head to our ranking of the top medium-term trading brokers to get started.
FAQs
How Long Is Medium-Term Trading?
What is medium-term in the stock market is not the same as other markets and instruments like real estate or binary options. However, a period of days and months can be considered medium-term when online trading. This time frame is also commonly referred to as swing trading.
What Are The Best Medium-Term Trading Strategies?
Popular medium-term trading strategies include mean reversion, momentum trading and rumour-to-news investing. For more details on each approach, see our full guide to medium-term trading.
Is Mid-Term Swing Trading Possible?
Trades in the medium-term are often classed as swing trades, as these positions are held longer than day trades but shorter than long-term investments.
Swing trades can be made on multiple markets, from stocks to commodities and cryptos. There are also a variety of strategies that can be applied, from trading on momentum to mean reversion.
How Should I Choose A Broker For Medium-Term Trading?
The best brokers for medium-term trading will offer suitable investment vehicles such as spot stocks, ETFs, futures and options. Commission fees will also be low and they will provide access to a reliable trading platform and mobile app, such as MetaTrader 4. Also check that the firm is regulated by a trusted financial agency, such as the UK FCA or the US SEC.