Why Short-Term Investing Is Good?

In a volatile stock market, there are merits in taking on a short-term investment approach because all stocks, regardless of their underlying fundamentals, can plummet.

Varying your trades and preserving your capital allows you to have a piece of mind and belief in your own abilities. Long declines, without obvious reasons until it reaches the bottom, are avoided when you made the decision to sell on a stop-loss order.

But of course, short term does not imply that you must close your position within a predetermined period of say, 1 day or a week. You must have a strong reason for closing your position, for example, the stock has been downgraded or it is no longer actively traded. If there is a reversal in fortune, you can then re-establish your position, sometimes at a profit.

Short-term investing once mastered behaves much like a dependable business. You cannot be in and out of the market frequently without being “good.” It requires you to be nimble, to look into the stock’s accounts, keep an eye on the market and the general trend.

Unlike long term investments, you can “fire and forget” and get complacent that things will be alright by waiting it out. That becomes an excuse for most people who don’t do any homework when they go long on a particular stock.

It is well documented in behavorial finance that human beings are averse to realizing a loss of few hundred dollars but they have no problems with sitting on paper losses of ten of thousands.

Though I have a portfolio of blue chip stocks which I kept over the years, I do indulge in short term trading at times. Understanding short-term principles can help you out as a long-haul investor. Some of the best buys originate out of a continual series of bullish short-term indicators while some minor temporary tops turn out to be vital last-chance selling points.

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3 Comments

Filed under Stocks

3 Responses to Why Short-Term Investing Is Good?

  1. Nice writing. You are on my RSS reader now so I can read more from you down the road.

    Allen Taylor

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