If you’re thinking of trading stocks and shares in order to boost your income – or even as a full-time job – you’ll need to decide on the approach you are going to take. There are innumerable tactics and techniques when it comes to investing your hard-earned income. Three of the most popular are day trading, short-term trading and long-term trading. But how do these approaches differ, what are their benefits and drawbacks, and which should you start to pursue? In this article, we look at the basics of each in order to point you in the right direction for success down the road.
This term refers to a technique whereby investors buy and sell the same shares within 24 hours – and often much less. It’s fast-paced, high-risk and requires significant market knowledge as it relies on your ability to respond to tiny adjustments in stock value. This strategy should only be attempted by experienced traders with plenty of time on their hands, as the capacity to keep a constant eye on developments and respond to them quickly is a must. Success as a day trader can result in huge rewards but, as is the case with any technique that offers the potential for significant profit, there is also the risk of massive loss.
If you buy and sell the same shares within a period spanning a few days, you are a short-term trader. While this option still offers the possibility of considerable returns, it is slightly more relaxed and does not require quite the same level of constant vigilance as day trading. However, it should still be taken seriously and closely managed. Short-term traders should understand the patterns and cycles of the market well, and need to be able to respond to trends quickly. Their technique relies less on minute movements, so they should be skilled in reading the bigger picture when it comes to the growth or decline of certain stock.
Long-term traders keep hold of their stock for anywhere between a few weeks and a couple of years. This truly is playing the long game, and should only be attempted if the investor in question is financially stable enough to do without taking profits for a considerable amount of time. It’s easy to get spooked by short-term stock movement, but, if you’ve done your research on the company in whose shares you have invested, you should be confident enough to stick with your decisions and watch your profits grow gradually.
This tactic is perhaps the best for those who invest in order to achieve a secondary income stream instead of doing it full time, as you can afford to let things develop gradually without always having to keep your eye on the ball. A word of warning, however, is to not get complacent in the long-term. You still need to keep abreast of the rapidly changing market developments and be ready to make a move when the time is right to strike.