Day Trades vs. Long Term Investing and Why This Matters To You

Day Trades vs. Long Term Investing and Why This Matters To You

When it comes to money making skills, you are probably thinking of one of two areas of investing in the stock market. The two most common depictions are day trading (often the depictions are from market makers or professional institutional traders…or Gordon Gekko….) and then there is the traditional buy and hold investing which focus on saving for the long term, buying on the dips of the market and holding until….well…( no one actually talks about when to exit these positions). The reality is though, that investing has all types of trading, and that there is a spectrum of time that anyone investor can hold a trade. Both long term investing and day trading can offer flexibility with entries. Don’t rule one style of trading out over another because you are worried that the market only provides opportunities within the typical 9:30-4:00pm EST, trading day when US markets are open. Here is why there are investing opportunities in both markets:

Time Horizons

The most obvious differences between long term buy and hold investment strategies and day trading is the time horizon and when you plan to exit your trade for profit (hopefully). Other types of trading include swing trading (which is really labelled as any time between day and long term….meaning there is a huge array of time choices that fall within ‘swing trading’). Whether you are a full time, part time, hobbyist or retiree, the type of trading has more to do with the type of investing you are comfortable with because there are advantages and disadvantages of all trade time horizons.

So what are some of your trading options?

Day Trading Can Happen 24 hours a day.

I honestly believe that everyone has time to invest, but what most people don’t realise, that just like working out, or cooking dinner, you will need to commit to adding investing time to you day just the same way as you commit to any other hobby with a goal associated with it. While I get that we are all busy people, and that time is probably a ‘hot commodity’, you can invest in the markets with a little bit of time, or a lot of time, depending on how much time you have to allocate to this. Based on the amount of time you have to allocate to investing, you can choose a timeframe that works for you. For example, if you are a early bird, you might make a goal of waking up earlier in the morning to be able to look to place a day trade in some of the European markets (just the same way as you would wake up early to workout)….and well, if you don’t want to wake up early to workout or trade…that’s okay too. If you are a night owl, there is always a market that is open 24 hours a day, so if day trading is your thing, then you can find a market that suits when you can allocate time to trade it.

Long Term Investing

The best part of the ‘buy and hold’ type strategy is that since you are planning to hold it for a lengthy period of time, your entry price will probably be smoothed out the longer you hold the trade. I would argue that being precise about the purchase price of the stock or ETF that you are trading might not be as important (all with in reason of course…you don’t want to be buying high just before the market drops or buying a low thinking the move will continue, only for it to reverse directions on you). Other than extremes of highs and lows in price swings, your entry price in a trade that you will try and hold 5+ years won’t mean that you need to time it down to a 5 minute bar. This gives you some flexibility to look for long term trades when the timing is right for you. If are long term investing, don’t give yourself a hard time if you ‘miss’ the price you wanted to pay for a trade. That stock will most likely come back to the price you are looking at in the short term, which will ultimately provide another opportunity for a trade entry.

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