“Short-Term vs Long-Term Trading Risks

 > Explanatory Article by Marios Kyriakou, MSc Economics


About the author: Marios Kyriakou has a bachelor’s degree in Economics from the University of Cyprus and a master’s degree in Economics from the University of Warwick. He is also a holder of CySEC’s Advanced Certificate in Financial Services Legal Framework and a professional in Online Trading, Forex and CFDs with more than 7 years of experience.

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<Last updated 26.04.2020>

Dear reader,

Hi! If you are interested in online trading you should think carefully before you trade and take into consideration the below article where I explaining how short-term and long-term trading differs when thinking about strategy.

 

Short-Term Trading


Short-term trading refers to those trading strategies in which the lifetime of the trade is within a range of few days to a few weeks. However, it can also refer to a period of just a few minutes of hours, within the day that is > Intraday trading.

Advantages

> Short-term investing offers flexibility to the investor as they do not need to wait for a security to mature in order to get cash.

> Investors can make substantial profits in a very short amount of time (especially when leverage is involved).

 

Short-Term Trading Methodologies/Styles


Scalping: Style of trading that tries to profit from small price changes by opening positions that can last anywhere between seconds and minutes. The shortest of the trading styles. Traders must be aware of the costs they will incur for opening and closing trades, not to wipe out their trade profits.

Day Trading: Intraday trading style, thus avoiding rollover costs. Takes advantage of the market volatility that occurs during the day for short profits.

Day Trading: Swing Trading is the longest short-term trading style. It tries to spot the trend and trade the rises and falls within the overall price movement.

 

Day trading, position trading, swing trading, and scalping are four popular active trading methodologies. Even though trading short-term trading can make money, the truth is that it involves greater risk than buy-and-hold strategies.

To be successful one must:

> Use Moving Average and other indicators (Technical Analysis).

> Watch the calendar at particular times.

> Understand Overall Cycles (especially if you are trading stocks). Identify trends.

Keep losses manageable so gains will be more than the inevitable losses.

 

Intraday


In case of a breakout, the trader tries to take advantage of the rapid price move after the breakout and soon closes the trade in minutes.

In the case of intraday trading traders care more about:

-Breakouts

-Retracements

-Intraday ups and downs

 

Other trades last longer but still within the day such as the below:

– Fibonacci retracement levels only after a confirmed shock.

– Use Fibonacci Expansion >>Correctly Identifying the levels.

 

Technical Analysis


Using indicators in the Short-term.

Example:

Moving  Average

Caution:

When using indicators for small timeframes they can give false signals.

 

Using indicators in the Short-term.

Example:

Parabolic SAR

Caution:

The indicator does not necessarily signal the start of a trend due to the small timeframe 15 min.

 

The indicator focuses on the principle that momentum or volume changes ahead of price itself.

Caution:

When using timeframe 15 min. Better to consider a shorter period for RSI too, for example, 14 period.

Long-Term Trading


Long term trading refers to a trading style in which the trader will hold on to a position for an extended period, from a few weeks to a couple of years.

Several decades of historical asset class returns show that stocks have outperformed almost all other asset classes. Stocks are long-term investments.

This is, in part, because it’s not unusual for stocks to drop 10% to 20% or more in value over a shorter period of time.

While past results are no guarantee of future returns, it does suggest that long-term investing in stocks generally yields positive results, if given enough time.

Disadvantages:

> Long-term trading requires you to have a deep knowledge of the sector you are investing in. Too much research is involved.

> Big capital is needed to keep positions open for a long period of time.

> Swap fees charged overnight.

 

Advantages

> Because daily market fluctuations do not affect long-term stocks, risks involved with long-term investments are lower.

> Long-term investing in stocks is one of the best ways to invest in creating wealth. Long-term stocks benefit from economic growth.

> Long-term Bonds – Long-term bonds are interest-bearing securities with terms greater than 10 years.

> Less stressful: There is no need to constantly follow the market when trading long-term. You focus more on future market conditions.

> Time-saving: You can dedicate the time saved from constantly following the market on other activities.

 

Trading and Information Available


The market is influenced by the information investors and traders have available. This information is provided by various sources.

The media can be very powerful since the majority of people are observing and analyzing the information provided to them by global leaders in business and financial data such as Bloomberg and Reuters.

Market in the Long-Term is driven and  boosted by the news. In this case news on brexit deal are causing volatile markets and long term trend to form.

The Brexit news was pushing the GBP higher and higher.

It takes unpredictable Shocks for trends to change.

Long term opportunities to trade arise in markets that are heavily influenced by the news. Fundamental analysis has to be implemented greatly when there are macroeconomic factors changing that

affect the markets.

-Worldwide coordination through the media is possible.

-Make sure that you are able to identify changes in trends.


 

“I hope I am clear on this one. If not, contact us on social media and we will do our best to help you.

Thank you for reading my articles and watching my videos.”

Marios Kyriakou

Disclaimer: This article is intended for educational purposes only and does not replace independent professional judgement. Its purpose is to act as a complementary educational service to society, promoting personal development and social, economic and cultural progress of citizens. While this content has been prepared in good faith, no representation or warranty, express or implied, is or will be made and no responsibility or liability is or will be accepted by the creator to the accuracy or completeness of the information presented or any other written or oral information made available to any interested party and any such liability is expressly disclaimed.
Risk Warning: Trading in Forex and Contracts for Difference (CFDs), which are leveraged products involves substantial risk of loss as there is considerable exposure to risk in any off-exchange transaction, including, but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of the markets that you are trading. You should carefully consider your investment objectives, level of experience and risk appetite before making a decision to trade with us. Most importantly, do not invest money you cannot afford to lose. It is possible to lose all the initial capital invested.

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