4 Benefits of Long Term Trading vs Short Term Trading
If you’re looking to make money in the markets, you should know that being a long-term investor is usually more fruitful than short-term trading. It is a common misconception that short-term traders are able to swing success as they can find great opportunities and take advantage of them quickly. However, this simply isn't true. Long term trading is typically better for profit over time rather than trying to capitalize on an investment right away or risk a big loss if the market shifts against your favor. Here's a breakdown of why long term trading can be more profitable than short term trading.
1. Less Risky: One of the biggest reasons why long-term trading is safer than short-term is because you can accumulate a larger position in the stock or asset you are investing in. If you are buying and holding on to a position, you don't need to worry about getting out of it when the market turns against your favor because it's already locked into your portfolio. On the other hand, when you are daytrading or swing trading, there is always an element of risk since all your money isn't tied up in one investment. While this increases your investment potential, it also increases the risk that you could incur a big loss if the market shifts against you.
2. Longer Stops: Another reason why long-term investing is better than short-term trading is because with long term trading, your stop losses are much higher. A stop loss is the amount at which you will sell a stock or asset when it moves against your favor. If you are daytrading or swing trading, you won't have to worry about getting too excited and jumping into something with an unsustainable position size as your stop losses will most likely be low. When it comes to long term investment, however, there's no such thing as a low stake on a losing trade. The main reason for this is because you can already predict a few months or years into the future that things aren't going to go right for your investments.
3. Simple: Another great thing about long-term investing is that you can get in and out of trades at your own pace and simply sit back and watch as it plays out. You don't need to time the market and make decisions on short term trading. Instead, you can simply buy when your stock or asset hits a low point, holds steady, and then makes its way back up again. This will allow you to accumulate more profit over time as opposed to trying to get lucky with small gains on every trade.
4. No Emotion: The last benefit of long-term trading is that you are able to build a portfolio and stick with it. You don't need to worry about checking the price quotes of your investments multiple times per day as you will already have an idea how it is performing. This will reduce the amount of stress and anxiety when making trades, and allow you to make decisions from a logical standpoint rather than getting emotional and letting your emotions drive your investment decisions.
While short-term trading does have its benefits, there are also many advantages of long-term trading as well. By sticking with this kind of trading, you'll be able to build a strong portfolio and enjoy the monetary benefits of holding on to your investments for the long haul.
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Conclusion
This concludes my four-part series regarding the differences between long-term investing and short-term investing. In my opinion, both types of investments have their own benefits and drawbacks and can be good for different reasons. The key is understanding yourself, what type of trader you are, and using that knowledge to make informed decisions when it comes to your investments.
It's important to know when to hold 'em and when to fold 'em. Acquiring a trading philosophy that works for you will go a long way in ensuring your success in the stock market or with any other type of investment you choose to make in life.