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Why Short Term Trading?

My investing style has evolved over the years from initially a long-term, buy-and-hold philosophy into an investing style that has come to be dominated by short-term, "swing" and day-trades over the past six years. Why? Well, it’s a simple answer: short-term trading is a lot more lucrative. The returns are higher, and the risk is lower – once you learn how to trade properly. There is a reason that the Wall Street firms dedicate a good percentage of their staff’s time to short-term trading – and it isn’t for scholarly research!

As a long-term investor, you are "buying and holding" for the long term, in the hope that prices will rise. Over time, they usually do – but, in the meantime you essentially put yourself at the mercy of the market. Prices often rise, then decline many times over, covering the same ground. On the other hand, the short-term trader stands to benefit from many of the price fluctuations, gaining an increased rate of return on his or her capital. Think of the advantages from just NOT being long a stock during a major decline – just from being "out" of the stock! Sound easy? Sorry, not so easy at all. And therein lies the rub.

Especially today, with the fantastic tools available, short-term traders have much greater flexibility to achieve the greater returns. On any given day, a short-term trader might be short a stock, long the same stock, or just flat the market (which is often the best choice). Good short-term traders earn anywhere from 50% to (believe it or not) several thousand percent a year, compared to 10 to 50% a year returns for a skilled, world-class investor. But, short-term trading requires a lot more work, and the risks are potentially much higher.

Most who try it, find short-term trading to be quite difficult. This is the fact that is often overlooked by the legions of newly-minted "day traders" filling the trading rooms around the country – or at home humped over their PC’s, quote screens and charts, tied into the market with high-speed connections. Approached in the wrong way, short-term trading is a loser’s game, a possible road to financial ruin. In this deadly serious business, there are no assurances of success. On the contrary, there are many potholes and potential paths to failure. So, it is something best approached very cautiously, with an emphasis on capital preservation by developing a repeatable, risk-controlled technique. That is the key to insuring you’ll have the ability to continue trading profitably another day.