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. Because one side is rather conservative in its approach, whereas the other has a more radical and freewheeling attitude, it is rare for the two sides to reach agreement. Most of the time, day traders are considered the mavericks of the trading world and they are also known for taking gambler’s risks and making huge profits in short amounts of time and sometimes buying and selling the same stock several times in a single day. Aside from following a more risk-averse path, those who prefer to buy and hold their stocks also 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. Even if you do encounter a worst case scenario, it will still not adversely impact your overall financial situation.
You will find both pros and cons to both styles of investing. There are those who do day trades and they end up enjoying the fact that they can get in and out of the market quickly and make money without waiting for the results. But any kind of stock market investment strategy requires research into the companies you decide to invest in, and research can take time to do. If you are buying and selling so fast that you don’t have time to do adequate background analysis, day trading may not be a prudent approach.
Considered as a time-tested approach to the stock market is investing in companies that provide slow but steady returns. 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 and this idea is in fact supported by most historical evidence. For those who are young enough to have time on their side, it is probably a wise option to buy some stocks and sock them away for retirement.
With most investments, it is usually best to diversify to minimize risk and maximize potential gains. 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. If one basket of investments doesn’t do well, the other probably will. And if both do well, you will enjoy twice as much success.
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