Short Term vs. Long Term Trading
There are many approaches when it comes to trading. Every market which includes stocks, indices, commodities, and forex, open a window of opportunities to investors to profit and minimize losses. While traders have a number of strategies to implement one of the biggest decisions to make is whether to trade short-term or long-term. Both types of trading have their inherent advantages and disadvantages, which you ought to be aware of as a new investor.
Choosing a style of trading
The biggest question is which trading approach a trader ought to make and which one is more lucrative. However, it is important to understand the basics and the pros and cons of short term and long term trading. Short term refers to trading that can last from a minute to a day or several days. On the other hand, long term refers to a system of trading that could last from more than a day to several weeks, months, a year, and more. Volatility plays a major role in both types of trading although both have the same entry signal parameters and target exits while short term trading has a smaller stop loss exit.
The highlights of short term and long term trading
Markets can move at the slightest change. An armed conflict, economic crisis, unemployment rate, poor or excellent quarterly figures, analysts’ comments, GDP, and so many other factors can affect the markets and send them into a tail spin. So before you begin trading you need to learn to be in tune with the markets, which is a big advantage and will help you choose between short term and long term trading. As a trader, you need to be objective enough to understand the benefits on the other side of the fence. There are some important factors that you ought to be aware of when it comes to both types of trading:
- Short term trading usually involves higher transaction costs.
- It goes without saying that long term traders have sufficient time to make well informed decisions
- Managing a portfolio is easier with long term trading
- You need to be up to date with the markets, often on a minute by minute or hourly basis to profit from short term trading especially in the binary options market.
No matter what type of trading you choose, it doesn’t make you a better or worse investor. The key is to pick a style of trading you are comfortable with. The time you have on hand to dedicate to investing and the amount of capital at your disposal play a major role in your choice of trading.
Is short-term trading for you?
Short term trading is much more demanding when it comes to time. For the most part, you could consider it as good as a full time job. You need to constantly monitor the market and be quick to understand the technical aspects of trading, which includes reading indicators and learning to master moving averages, candlesticks, straddles, and Bollinger bands. While the rewards can be significantly high, short term trading also comes with risks. You need to understand exactly when to cut losses, use stop loss strategies efficiently, and be adept at money management. If you have a significantly larger amount of capital at your disposal it may be worth considering short term trading. This type of trading works best when you purchase in bulk where even a 1% move could fetch good returns. The forex and binary options market is among the best for short term trading where you can place trades for as little a time period as 60 seconds to an hour.
Long-Term trading carries lesser risks
Most traders associate long term investing with the stock market where stock can be held for a year and more. Much of this trading focuses on fundamental analysis rather than the technical aspects. If you only have a little while to spare and aren’t an aggressive type of investor, long term trading could be the ideal option. You won’t have too much to fear if there is an occasional drop in share prices. One of the biggest advantages is you don’t need to invest huge amounts since this is not a ‘get rich quick’ type of trading as long as you invest wisely.
It is always prudent to weigh the pros and cons of short term and long term trading. They appeal to different types of people. There are many time tested and proven strategies that can often be used in this type of trading. If you an aggressive investor with time on your side you could try your chances at short term trading. On the other hand, a passive investor with a goal such as making money for retirement could always opt for long term trading.