Well, I guess I need to figure out exactly how to approach this. Should I follow long-term buy-and hold, position trading, swing trading or day trading strategy?
Option 1: Day Trading/Swing Trading
I can easily eliminate day trading. First, the NYSE and NASD markets require $25,000 in a day-trading account in order to sell before settlement. Sure I could put away $25,000 into an investment account, but do I want to at this point? Not really.
Secondly, I just don’t have time to devote to day-trading. I have to earn money somehow. And right now, obviously, its not in the market. I can’t quit my job to buy and sell stocks a dozen times a day. Maybe one day, but first lets figure out how to make money in this business.
Option 2: Long-Term Investing
Long-term investing is a good strategy. Warren Buffet makes money at it. Most of the talking-heads follow a long term strategy. Buy and Hold. It allows you to overcome the ups and downs of the stock with the knowledge that over time the market moves up. True, true. But what is the long term. One year, 5 years, 10 years?
Well in general long-term — buy and hold — strategy is typically a five-year hold strategy. Sure you buy and sell when appropriate so you can rather easily switch out of a bad investment and into a hopefully better one. But you must get down and dirty with the fundamentals of the stock so that you can choose the best of breed.
It is a passive investment strategy. But lets not be confused into believing that you don’t need to monitor your investments. Some say buy and forget, but that seems too dangerous to me. You can be in a stock with no future or one that just underperforms. But then again maybe its just a bad year.
Long-term investing is supposedly the most successfuly strategy over time. Some reports indicate that those who buy and hold out perform traders in the long term. However, some traders out perform long-term investors. Overall it may prove that long-term investing reduces risk over trading.
Option 3: Position Trading
Position trading involves buying stocks and selling them in a short period, normally more than a day and less than a month (though sometimes for a couple of months). This allows me to buy a stock, not have to monitor it hour-by-hour and capitalize on short term price changes. Unfortunately, you increase risk over day-trading — you stay in stocks overnight while day-traders are completely out of their holdings by the end of the day. However, I believe its a decent balance between the buy-and-hold and day-trading strategies.
Unfortunately you need to analyze fundamentals and technicals. So its more work than buy-and-hold. Sure with buy-and-hold you want to get the best entry point as possible, but its not as imperative as with position trading, remeber you’re in it for years so a few cents here and there is moot. However, it can be important with position trading (but then again, not as important as with day-trading).
Alas, this seems all so confusing. But at this time I am leaning toward position-trading. I believe you have a good balance between day and swing trading and buy and hold strategies.
This is just the beginning.
Related posts:
- Licking My Wounds Well, its been a while. I have been cowering in...
- Missed Opportunity (Lesson Learned) – SBUX May $16 Put This was a missed opportunity that hurts. As previously posted...
- Two Months, Four Days Well, the title has nothing to do whatsoever with what...
- Mechanical Investing – Rely on the Numbers Fire and forget investing. Sounds boring. Sounds dangerous. But it...
- The Plan – Version 1b1 Well, the first go around did not do as well...
I am an amateur trader and investor with over 15 years experience in the stock market. I was bred to be a fundamentalist and followed fundamental analysis until 2009. Following the 2007-2008 bear market, I began to shift from a buy-and-hold strategy to trend-following techniques.