By Justin DeMerchant
There has always been a movement by people to "own" stocks. Really in my professional opinion that is the absolute wrong approach. Stocks are for trading, not for owning. You can make a lot of money trading stocks, and lose a lot of money owning stocks. I think people should look at stocks as an investment, and unless you can buy a huge stake in a company and exert some influence over the operations you shouldn't think you "own" the company or any piece of it.
Far too often people decide "Hey, I like this company. I like the things they do." and so they won't sell their stock in the company because they want to support it. This is foolish. The company doesn't care about you, and you shouldn't really care about it. Being emotional is for relationships, and make no mistake, you are not in a relationship with a company.
People need to stop and think with their brains more often and that is why rules based trading is so smart, and while stock trading programs can help a lot of people in making money. This is a business and needs to be treated as such.
Short term trading basically encourages people to take up an investment only as long as it is immediately profitable. If a stock isn't going to make you money RIGHT NOW then sell it, buy something else, and then if you think the first stock is going to grow in value later you can buy it then. Stocks are money, not lovers. Be smart and you'll make money.
Wednesday, August 26, 2009
Thursday, August 13, 2009
Why Technical Analysis is So Important to the Short Term Trader
By Doug Fisher
Trading for short term profits is a profession, not unlike owning a small business. It requires dedication and a commitment to discipline just as any vocation on the professional level demands. What sets this kind of trading apart from a traditional small business is the freedom provided once the trader becomes successful. However, every year many turn to the equity markets with dreams of taking huge profits using trading methods such as day trading, swing trading or scalp trading. Unfortunately, these methods of trading require skill levels that cannot be obtained overnight.
These methods of trading primarily rely on technical analysis rather than a fundamental approach used by long term investors. Investors traditionally only consider individual companies or stocks and possibly one general sector as whole and whether it is in favor or ignored by Wall Street. This is generally the extent of a long term investor's "technical analysis" with all other research being the financial health of individual companies.
Shorter term traders, on the other hand, usually could care less about the fundamentals of a company since short term trading by definition means the trader will not be invested in the company long enough to matter fundamentally, anyway. The only concern the short term trader has is what technical analysis tells him about the stock on that day and at the most, a couple of weeks.
Chart patterns, overbought-oversold conditions, uptrend or downtrend, support and resistance, these are just a sample of the terminology the short term trader lives by. In order to be successful with short term methods and profiting in the equity markets, the trader must gain the necessary knowledge and acquire the skill level needed to compete and win. Technical analysis requires an the ability to interpret stock charts, proficiency in understanding indicators and oscillators as well as an understanding of market internals.
Once an understanding of technical analysis is obtained, the trader should then decide which short term method best fits his personality and risk tolerance. Learn more about one short term trading method, scalp trading, which is used by many traders to execute winning trades and reduce exposure time in the equity markets.
Trading for short term profits is a profession, not unlike owning a small business. It requires dedication and a commitment to discipline just as any vocation on the professional level demands. What sets this kind of trading apart from a traditional small business is the freedom provided once the trader becomes successful. However, every year many turn to the equity markets with dreams of taking huge profits using trading methods such as day trading, swing trading or scalp trading. Unfortunately, these methods of trading require skill levels that cannot be obtained overnight.
These methods of trading primarily rely on technical analysis rather than a fundamental approach used by long term investors. Investors traditionally only consider individual companies or stocks and possibly one general sector as whole and whether it is in favor or ignored by Wall Street. This is generally the extent of a long term investor's "technical analysis" with all other research being the financial health of individual companies.
Shorter term traders, on the other hand, usually could care less about the fundamentals of a company since short term trading by definition means the trader will not be invested in the company long enough to matter fundamentally, anyway. The only concern the short term trader has is what technical analysis tells him about the stock on that day and at the most, a couple of weeks.
Chart patterns, overbought-oversold conditions, uptrend or downtrend, support and resistance, these are just a sample of the terminology the short term trader lives by. In order to be successful with short term methods and profiting in the equity markets, the trader must gain the necessary knowledge and acquire the skill level needed to compete and win. Technical analysis requires an the ability to interpret stock charts, proficiency in understanding indicators and oscillators as well as an understanding of market internals.
Once an understanding of technical analysis is obtained, the trader should then decide which short term method best fits his personality and risk tolerance. Learn more about one short term trading method, scalp trading, which is used by many traders to execute winning trades and reduce exposure time in the equity markets.
Tuesday, August 4, 2009
4 Benefits of Long Term Trading vs Short Term Trading
By Mark Crisp
Both short term trading and long term trading can be effective trading strategies, however, long term trading has several significant advantages. These include the effect of compounding, the opportunity to earn from dividends, reduction of the impact of price fluctuations, the ability to make corrections in a more timely manner, less time spent monitoring stocks.
1. Compounding
Time can be investor’s best friend because it gives compounding time to work its magic. Compounding is the mathematical process where interest on your money in turn earns interest and is added to your principal.
2. Dividends
Holding a stock to take advantage of payouts from dividends is another way to increase the value of an investment. Some companies offer the ability to reinvest dividends with additional share purchases thereby increasing the overall value of your investment. Additionally, dividends are more a reflection of a company's overall business strategy and success than volatile price fluctuations based on market emotions.
3. Reduction Of The Impact Of Price Fluctuations
In the long term investment the persons is less affected by short term volatility. The market tends to address all factors that keep changing in the short term. So a person involved in long term investment or trading will not be affected as much by short term instability due to factors such as liquidity, fancy of a particular sector or stock which may make the price of a stock over or undervalued. In the long term, good stocks which may have been affected due to some other factors (in the short term) will give better than average returns.
Long-term investors, particularly those who invest in a diversified portfolio, can ride out down markets without dramatically affecting his or her ability to reach their goals.
4. Making Corrections
It is highly likely that you could achieve a constant return over a long period. The reality is that there will be times when your investments earn less and other times when you make a lot of money in short term. There may also be times when you lose money in short term but as you are in quality stocks and have long perspective of investment you will earn good returns over a period of time.
There are always times when some stocks do not perform and it is the wise choice to pull out of an investment. With a long term perspective based on quality stocks, it is easier to make decisions to change in a more timely manner without the urgency that accompanies short term and day trading strategies chasing volatile changes.
Investors that begin early and stay in the market have a much better chance of riding out the bad times and capitalizing on the periods when the market is rising by taking a longer term view using long term trading strategies.
Both short term trading and long term trading can be effective trading strategies, however, long term trading has several significant advantages. These include the effect of compounding, the opportunity to earn from dividends, reduction of the impact of price fluctuations, the ability to make corrections in a more timely manner, less time spent monitoring stocks.
1. Compounding
Time can be investor’s best friend because it gives compounding time to work its magic. Compounding is the mathematical process where interest on your money in turn earns interest and is added to your principal.
2. Dividends
Holding a stock to take advantage of payouts from dividends is another way to increase the value of an investment. Some companies offer the ability to reinvest dividends with additional share purchases thereby increasing the overall value of your investment. Additionally, dividends are more a reflection of a company's overall business strategy and success than volatile price fluctuations based on market emotions.
3. Reduction Of The Impact Of Price Fluctuations
In the long term investment the persons is less affected by short term volatility. The market tends to address all factors that keep changing in the short term. So a person involved in long term investment or trading will not be affected as much by short term instability due to factors such as liquidity, fancy of a particular sector or stock which may make the price of a stock over or undervalued. In the long term, good stocks which may have been affected due to some other factors (in the short term) will give better than average returns.
Long-term investors, particularly those who invest in a diversified portfolio, can ride out down markets without dramatically affecting his or her ability to reach their goals.
4. Making Corrections
It is highly likely that you could achieve a constant return over a long period. The reality is that there will be times when your investments earn less and other times when you make a lot of money in short term. There may also be times when you lose money in short term but as you are in quality stocks and have long perspective of investment you will earn good returns over a period of time.
There are always times when some stocks do not perform and it is the wise choice to pull out of an investment. With a long term perspective based on quality stocks, it is easier to make decisions to change in a more timely manner without the urgency that accompanies short term and day trading strategies chasing volatile changes.
Investors that begin early and stay in the market have a much better chance of riding out the bad times and capitalizing on the periods when the market is rising by taking a longer term view using long term trading strategies.
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