shaun Rosenberg

Long Term and Short term

What is the difference between long and short term trading.  What are some misconseptions.

I was talking to a friend of mine who is a big buy and hold investor, of course there is nothing wrong with that, but it seems like he was confused because of the name.

He told me that because he was a long term investor and I was a short term trader he would make more in the long term.  According to him I can make more in the short term, but he can make more in the long term.

That isn’t necessarily true.  You can make great long term money by investing in the short term, not because you buy a stock and wait for it to go up.  Instead you make long term money by taking smaller profits here and there, again and again and again.

All those profits add up over time. Because Of this short term trading can bring you huge long term profits.  But there is a catch; you can’t spend everything you make.  If you do then my friend is right long term investing is more profitable in the long term.

Another misconception he had was that even though it was easier for me to make big money it was also easier for me to lose it.  Not true, if you are trading correctly. 

The first and foremost thing that sets short term traders apart from long term, and the whole reason why trading shorter time frames works is because of one thing.  We must cut our losses short.

I am not going to hold a stock as it falls 50%, which I am sure he has.  Instead I cut my losses short.  Once a stock starts to turn against me I am out.  This way no 1 trade can impact my portfolio that much. 

Sure I might get a few losers in a row, but each of them only loses a small portion of my account.  And when I get a few big winners it will more than make up for my losses.

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