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Friday, February 10, 2012

Long term or intraday trading

Today I just want to give a few of my thoughts on long term or intraday trading. I do not want to put this question “To be or not to be” by trying to say which method is good and which one is bad. However, I can also say that I have my preferences and therefore I can be subjective in my reasoning. Now, if you expect to come to financial markets and make quick money I can tell you that you will get disappointed very fast. It is statistics. Most people get burned in Forex, stocks and commodities. There is countless number of reasons why this happens, but one thing that you have to be sure of is that gambling and trading are absolutely different concepts and should not be associated. 

From my own practice I see that one should learn to see the big picture first and only then develop some intraday trading strategies. If you do your own analysis you will find out that most newbie traders are interested in short term trading strategies. This as you may understand is connected with fast profits that those traders expect to get. 

As I said, I do not mean to say that long term trading is better than short term trading, but trading is a skill that has to be learned, which takes time to do. If you expect to be successful in intraday trading you have to be very sharp and have a lot of filters to filter out false daily signals that abound in the markets. I know that dealers with their optimistic messages about trading lure a lot of people to start trading. The former definitely make money, the latter surely lose it. 

Advantages of long term trading over intraday trading:

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More time to make decisions

If you are a long term trader you have much more time to make decisions. A short term trader will often have to make spontaneous decisions. Most successful investors and speculators will tell you that you have to be anticipating rather than reactionary. You often do not have enough time to make logical decisions if a market is moving very fast and you have to decide whether to get out of the market or to stay in it. When you are there for a long run you know where you expect to take your profits and how much you can afford to lose. Long term traders usually can handle much bigger market moves against them, because they are not overleveraged. 

You might lose big picture intraday trading

Since intraday traders do not see big picture they easily become over focused on what is happening now. They might be stuck with a few pairs without being aware of what is going on with the rest of the market. Long term traders do not need to stay glued to their computer screens, but can check how markets (and their trades) are doing only once a day, or even once a week during the weekend. 

In Forex long term trading gives you opportunity to make interest

If we talk about Forex, long term traders can take advantage of trading carry trades, which is not possible for short term traders. If you did careful analysis of aud/jpy (ten years) you will notice that having sound risk management system you could have traded multiple times and made good money both by collecting interest and going in the direction of a trend. 

Psychological stress is usually an inseparable part of intraday trading

Psychological stress is another thing that one usually experiences in day trading. You have to constantly check your position, which may cause you to break your discipline and modify your trading strategy. Plan your trades and trade your plan should be a motto of any trader. That is very difficult if you are under constant stress. This can also kill any joy in trading and make the experience detestable. Most traders either burn their accounts very fast or become emotionally exhausted and lose any motivation to continue trading. 

I hope you can see now that I prefer long term to intraday trading. For me, the reasons are obvious and I tried to share those with you in the post. I will repeat myself by saying that I am not against day trading. You should know that from my previous posts. However, I think that consistent money is much easier made having a long term picture and not by concentrating on short term strategies. 

Good luck in your trading.

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Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.