For those who would buy and sell stocks, an ongoing debate about whether the most profitable approach to stock market trading is short or long term investment is what they face. And the two sides rarely reach agreement, because one side is rather conservative in its approach, whereas the other has a more radical and freewheeling attitude. Day traders are usually considered the mavericks of the trading world, and they are known for taking gambler?s risks and making huge profits in short amounts of time sometimes buying and selling the same stock several times in a single day. For those who would rather buy and hold their stocks, the path they follow is more risk-averse and they cite historical trends to back up their claim that their method is actually more reliable and is the real shortcut to wealth.
Most investors can enjoy the best of both worlds, by setting aside some of their money for day trades, and the balance of it for longer-term investment. Most of us would be advised to put only as much of our investment capital as we can comfortably afford to lose into this kind of trading strategy due to the fact that day trading tends to be more volatile and can also result in quick profits or fast losses. That way, even if you encounter a worse case scenario, it will not adversely impact your overall financial situation.
You will find both pros and cons to both styles of investing. The fact that they can get in and out of the market quickly and make money without waiting for the results is what those who do day trades end up enjoying. However, you will be required to research into the companies you decide to invest in and research can take time to do when it comes to any kind of stock market investment strategy. In case you are buying and selling so fast that you don?t have time to do adequate background analysis, then it?s possible that day trading is not a prudent approach.
When you invest in companies that provide in slow but steady returns, then it is a time-tested approach to the stock market. In fact, most historical evidence supports the idea that if you buy quality stocks and hold them for long periods of time at least five years or more you will do very well in the stock market. For that reason, those who are young enough to have time on their side would probably be wise to buy some stocks and sock them away for retirement.
With most investments, the best thing to in order to minimize the risk and maximize the potential gains is to diversify. In order to accomplish this in the stock market, one way is to employ both strategies, and use a portion of your investment capital for short-term trades while leaving another portion in long term investments. Chances are, if one basket of investments doesn?t do well, the other probably will. You will enjoy twice as much success if both of them do well.
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