Finding Balance in General Trading Strategies

Traders tend to focus on the direct method of making money in a market whether it is trying to understand how to use indicators or predicting how certain news and events will influence the price. However, few articles I read about investing touch the aspect of the general types of market participation (excuse the vague wording). There are two schools of thoughts a trader can take up when participating in a market. One can have aims of long term investing in which a steady growth or decline is anticipated over an extended period. By trading long term, an arbitrary expectation of let’s say 100% on a single trade can be made over the course of an arbitrary time period of a few years. The other is a short term strategy, taking advantage of minor movements in the market. By trading short term, movements of a few percentage points over a few days for multiple trades will suffice expectations, cashing out as soon as a small profit is made. By putting in an extensive volume using this method allows a trader to accumulate wealth over time just like the long term strategy. Both strategies have their merits but a few things come into mind when deciding which trade strategy to employ:

1. How much time are you able to spend on a market?

2. What are you interested in?

3. How volatile are the markets?

The first question is fairly easy, are you able to clock a few hours a day dedicated to investing. If yes, then move onto the next question. If not, I suggest to do some light short term trading. There is a reason why stock markets are touted as a highly dangerous investment. If you don’t do your research, you increase your likelihood of getting burned. A few hours a day isn’t too much to ask however, if you are bumblebee busy then this method isn’t for you as a skill based investor.

The second question is a fairly simple one and has a lot to do with who you are as a person. Do you enjoy learning about the development of various sectors? Do you pay attention to the news often? Are you observant of the material world and how everyday human actions relate to the global market? If the answer to the above questions is “YES” then long term investing would be your answer. You champion the act of seeking knowledge and this does pay off in preparation for a boom or bust for the long term. If you like more of a technical side of things, observing patterns within market prices, then trading short term would be an option. Markets tend to follow certain patters regardless of what listing you look at. Indicators, areas of resistance and cycles are excellent approximations to analyze the overall picture without getting head deep into specifics in any kind of market. That doesn’t mean there is no learning curve. There is, but that does mean that the skill set and feel you develop trading one market can directly transfer to whatever else you want in the future.

Our last point has to do with volatility. The more volatility a market has the more merit one has towards short term trading. An example would be fluctuations in penny stocks where valuations can jump between triple digits in one day, allowing one to take advantage of a potential short term profit. It is important to note that I will not say the opposite will directly be advantageous towards long term investing. Things can be highly volatile and still be profitable in the long run just like in the crypto world. Though, it might run some heart attacks along the way.
An additional note I will mention is that most short term traders are losers. They tend to be overconfident of their capabilities and make a lot of mistakes in doing so (1). If you are interested in it, make sure you are able to get past this psychological roadblock.

Of course, there is the option of having a balanced portfolio strategy involving both long term investing and short term trading to certain degrees which will be left to the individual to decide what is good for their needs. Again, there is no right answers, only answers that are better than others.

(1) https://www.investopedia.com/articles/active-trading/053115/average-rate-return-day-traders.asp