Welcome Stockaholics!

We are a new and fast growing financial forum! Sign up for free and let's talk stocks!

  1. Do you want to help develop this community? We are looking for contributions from investors and traders like you! What stocks do you follow? What is hot right now? Sign up and get in on the ground floor of the newest, fastest growing financial forum!
    Dismiss Notice
  2. You will notice a live chat widget on the right. Click in to join us and lets hear about how you nailed that last UWTI trade!
    Dismiss Notice

Why is short-term trading considered to be a bad idea?

Discussion in 'Investing' started by StockJock-e, Apr 4, 2016.

  1. StockJock-e

    StockJock-e Brew Master
    Staff Member

    Joined:
    Apr 3, 2016
    Messages:
    6,198
    Likes Received:
    1,591
    originally posted by 3ternal 9 points 6 days ago

    Why is short-term trading considered to be a bad idea?

    I'm the type of casual retail investor that this board doesn't like (Robinhood user, no finance background, investing with a total of <$1000). So far I've been doing short-term trades (holding for a day or two) and trying to profit from upswings of ~2%.

    Even with the 3-day wait for my balance to settle after selling, I managed to make 8% in March, and maybe 5% in February.

    Why is this considered to be inferior to passively investing in S&P? Is it because I'm statistically likely to lose 8% in a coming month? Or is it that this strategy wouldn't scale if I were investing >$10,000 instead?

    Top response:

    YOLOadvice 8 points 6 days ago*

    Although you may be able to make a consistent profit in the long run, I have seen traders who would have done as well or better if they had simply left the money in a broad market fund and left it. They were just making money from the overall uptrend of the market that they could have taken advantage of with much less effort.

    Also it is probably more worth your time to get a minimum wage job than spend the amount of time it takes to trade with a balance of that size.
     
  2. Zaysev

    Zaysev Member

    Joined:
    Apr 5, 2016
    Messages:
    261
    Likes Received:
    23
    Yeah, that's what scares me most in short-term trading with low balance. Even though it's definitely possible to hit the jackpot there, the amount of time, effort and nerves it takes to even have a chance to do so simply seems overwhelming to me.
     
  3. nylonmarkup

    nylonmarkup Member

    Joined:
    Apr 6, 2016
    Messages:
    30
    Likes Received:
    9
    I guess, there is a risk in a short term trading and I agree with you Zaysev. I think, in order to gain more, you have to have a goal and have the reasons for investing.
     
  4. Jamie2020

    Jamie2020 New Member

    Joined:
    Apr 15, 2016
    Messages:
    2
    Likes Received:
    3
    Its all in the strategy. Long term investing involves being able to identify value while simultaneously having confidence in the company in question ( revenue growth, debt/equity ratio etc) whereas short term investing consists more so of identifying trends that spell opportunity. In other words investing long term often means defying the efficient market hypothesis ( company valuations represent public information about them).
     
  5. Tiptopptrader

    Tiptopptrader Well-Known Member

    Joined:
    Mar 31, 2016
    Messages:
    5,036
    Likes Received:
    1,148
    I am Swing Trader and Investor. I hold my swing trades anywhere from a couple days to a couple weeks. Before I even trade I try see what my potential profit could be. I use 15% as my rule of thumb. I don't always get the 15% because of bumps in the road that may come my way. If see weakness I will sell and I will sell into a strong rally to name a few. If I make 7 to 10 percent on my trade I am good with that.

    As investor I try to stay ahead of the curve and figure out what sector is going fire up in the mid-term and make some value buys. With that I like to pick stocks with good dividends. Case in point: You could be upside down on your stock and a couple years from now because of the dividends you are actually up and can weather the storm or sell and take your profits.

    Every Battle is Won or Lost Before it is Fought
     
    homosapienfromterra likes this.
  6. fthree

    fthree Member

    Joined:
    Apr 10, 2016
    Messages:
    63
    Likes Received:
    8
    I know I sound dumb but I'm trying to learn all the differences between the way these things work. Is short term trading buying the stock outright then selling it thus you were "long" the stock at one point or is it getting it through margin with interest then short selling it? I know dumb,..... (But not trolling_)
     
  7. T0rm3nted

    T0rm3nted Moderator
    Staff Member

    Joined:
    Apr 2, 2016
    Messages:
    6,307
    Likes Received:
    1,602
    Don't worry, you're not dumb. Everyone starts somewhere. The original post was referring to short-term trading as in buying a stock at X price and then holding it for just a day/few days/week (you get the idea). Holding the stock short-term. The general idea by people who are not active in the market is that the smarter strategy is more long-term holding, or holding the stock for months to years.

    When someone says they are LONG a stock, they're simply referring to the normal purchasing of a stock and hoping the price goes up.

    Short selling a stock is essentially selling shares of a stock (that you don't have) and then buying them back at a later date while hoping that the stock prices goes down so that you can buy it back at a cheaper price. Basically the opposite of the LONG position in the paragraph above.

    Again though, the original post was referring to a short-term trading of a stock instead of investing for the long haul.
     
    fthree likes this.
  8. StockJock-e

    StockJock-e Brew Master
    Staff Member

    Joined:
    Apr 3, 2016
    Messages:
    6,198
    Likes Received:
    1,591
    There is a 3 day settlement you need to wait for.

    Also, dont feel that shorting is a horrible thing, its actually a pretty important market mechanism that reduced volatility!
     
    fthree likes this.
  9. Mitchell Eipper

    Mitchell Eipper New Member

    Joined:
    Mar 24, 2017
    Messages:
    3
    Likes Received:
    0
    Hi there, Investments is done to gain the profit. I am also planning to invest and while discussing with my friend, he suggested me to invest as a long term because it able to identify value and there is risk in short term investing. He suggested me about forager funds management for long term investment. If you have any suggestions, please tell me.
     
  10. Onepoint272

    Onepoint272 Well-Known Member

    Joined:
    Apr 26, 2016
    Messages:
    1,201
    Likes Received:
    1,076
    Hello Mitchell. The flip side to your friend's philosophy is that the longer you are in the market the longer you are at risk and mathematically it can be shown you actually accumulate more risk with long-term investing. However, short term trading requires skills in timing the market.
     
  11. Timbo

    Timbo Active Member

    Joined:
    Jan 15, 2017
    Messages:
    396
    Likes Received:
    134
    I hold 1 long position, which is down about 400 bucks. I have much better results daytrading. Some stuff I trade to try to make a few bucks,if it's a good quality stock that pays a dividend and isn't at the all time high I will usually go all in and keep the profit in shares. Built up some nice holdings doing this but it doesn't always work in my favor. I try to close my positions daily, win,lose or draw. To me cash is king, I often leave a lot still on the table but that's just how I play it.When it goes against me, I cut and run. Sometimes I will jump back in on the other side. As a nickel and dime player, we need to keep in mind what we are going up against, kinda like trying to beat the computer in a chess game.
     
    Onepoint272 likes this.
  12. Jrich

    Jrich Well-Known Member

    Joined:
    Jan 8, 2017
    Messages:
    786
    Likes Received:
    467

    Hey... That sounds just like me!

    Already some good answers posted... But here's my take

    Long term investing only works if you have money to invest... Period

    If you have less than $1000 in the market (me).. Then you're not investing.. You're practicing...... And practice means repetition..... How many times can you hold a position for 20 years before you die??... Not many

    Smaller capital also facilitates "safer risks" (how's that for an oxymoron?)..... There's no feasible way to make significant gains playing this small... Conversely, there's no way to lose your house either...... So swing for the fences!.... I truely believe you learn more from failure than you do from success.... Cause when you learn the hard way, you never forget!

    If you're frequently trading, and adding to your account monthly, weekly or daily.... Then by the time you have enough capital to play for keeps, you'll have the experience to match it

    At least that's my theory
     
    Onepoint272 likes this.
  13. Onepoint272

    Onepoint272 Well-Known Member

    Joined:
    Apr 26, 2016
    Messages:
    1,201
    Likes Received:
    1,076
    In a bucket shop where your margin is a shoestring you don’t play for long pulls. You are wiped too easily and quickly. ~~ Jesse Livermore

    There is nothing like losing all you have in the world for teaching you what not to do.~~ Jesse Livermore

    They say you never grow poor taking profits. No, you don’t. But neither do you grow rich taking a four-point profit in a bull market. ~~Jesse Livermore

    Where I should have made twenty thousand dollars I made two thousand. That was what my conservatism did for me.~~Jesse Livermore

    After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made big money for me. It was always my sitting..~~Jesse Livermore

    upload_2017-3-28_1-26-56.png
    [​IMG]
     
    Jrich likes this.
  14. alfredgervais16

    alfredgervais16 New Member

    Joined:
    Dec 4, 2016
    Messages:
    2
    Likes Received:
    2
    Many view long term investments as an answer to financial cravings. But too often people neglect the beauty and wonder of shifting to short term investments, a move that conveys a basic idea for a smarter and safer venture. This is the most special offer of the venturing in an asset kept less than a year and is done to avoid further risks in the capital and to gain quick wins but with two conditions: one is that assets should be easily converted to cash and two, it should be easily sold.

    With shorter period of time, investment in this type also offers a smaller return, unless you gamble with another type called short term-high yield investments. But as mention, you will deal with lesser risks, giving you more chance to end up in the winning side. This move is perfect to investors who set a goal for how much they want to earn and instantly cash it out once they achieve that goal.

    Short term investments can be tedious but who knows? Even a short journey can lead to fitting end.
     
    T0rm3nted and Onepoint272 like this.
  15. Mometic

    Mometic New Member

    Joined:
    Mar 28, 2017
    Messages:
    25
    Likes Received:
    10
    Because some only lose once (long-term) vs. dozens of times (short term). Where are the emojis??? :)
     
    Onepoint272 likes this.
  16. Caitlin Rogers

    Caitlin Rogers New Member

    Joined:
    Feb 14, 2017
    Messages:
    9
    Likes Received:
    2
    I don't think short term selling is a bad idea, it will always depend on a trader or to an investor on how will he or she will take advantage of it. Though I've been hearing that long term has a higher returns but if you are securing your money better to choose short term. I have been using short term then but up until now, it is my favorite.
     
    Onepoint272 likes this.
  17. Unicorn Dreams

    Unicorn Dreams New Member

    Joined:
    Mar 31, 2017
    Messages:
    28
    Likes Received:
    17
    The more I trade the less I believe in the idea of "efficient market hypothesis". If the financial market was completely transparent and human beings were automatons perhaps they would follow EMH. Human beings are unfortunately quite random at times which presents random opportunities.

    As for long term vs short term I'd say it all depends on the knowledge, skills, and capital of said individual trader.
     
    Onepoint272 likes this.
  18. Timbo

    Timbo Active Member

    Joined:
    Jan 15, 2017
    Messages:
    396
    Likes Received:
    134
    I tried the buy n hold, don't care much for it, I'll keep trading my way up the ladder. Feel much better being all cash at days end. I play about a dozen stocks that I keep the profit in shares, have others I trade for cash. This works better for me.
     
  19. kirtimeliwal

    kirtimeliwal New Member

    Joined:
    Aug 31, 2017
    Messages:
    16
    Likes Received:
    0
    There are some reasons why short-term trading is bad -
    1. Brokerage cost- No matter whether you make money or not by trading, Your broker will surely make money on all your stock trades.
    2. Financial Losses: Most of the traders enter into short-term trading to make quick money. But if things do not properly plan, they do not cut short the losses but it might be the cause of loss forever.
    3. Short term trading provides less time to make important decisions. it gives you a short time to react and thus you may end up taking bad and wrong investment decisions.
     
  20. Virus

    Virus New Member

    Joined:
    Oct 4, 2017
    Messages:
    3
    Likes Received:
    1
    Short / long term...does it really matters to you? You not profiting on time period, you're profiting on trend, right? And brokers..... OMG.... if they knew what they're actually doing don't you thing they've made themselves wealthy first rather than sitting in the office job for regular salary which partly depends on how much they going to rip of you ....... and than sooner you get your mind around this very basic fundamentals of stock market than better for you as no more questions like short/long will ever come to mind again ... ;)
     
    Onepoint272 likes this.

Share This Page