There is an ongoing debate about whether the most profitable approach to stock market trading is short or long term investment among those who would buy and sell stocks. It’s rare for the two sides to reach agreement due to the fact that one side is rather conservative in its approach, whereas the other has a more radical and freewheeling attitude. Usually considered as the mavericks of the trading world are the day traders and they are known for taking gambler’s risks and making huge profits in short amounts of time as well as buying and selling the same stock several times in a single day. For those who would rather buy and hold their stocks, the path they follow is more risk-averse and they cite historical trends to back up their claim that their method is actually more reliable and is the real shortcut to wealth.
By setting aside some of their money for day trades and the balance of it for longer-term investment, most investors can enjoy the best of both worlds. Day trading tends to be more volatile and for that reason, it can result in quick profits or fast losses and 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. That way, even if you encounter a worse case scenario, it will not adversely impact your overall financial situation.
There are pros and cons to both styles of investing. The fact that they can get in and out of the market quickly and make money without waiting for the results is what those who do day trades end up enjoying. However, you will be required to research into the companies you decide to invest in and research can take time to do when it comes to any kind of stock market investment strategy. In case you are buying and selling so fast that you don’t have time to do adequate background analysis, then it’s possible that day trading is not 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.
When it comes to most investments, usually it is best to diversify to minimize risk and maximize potential gains. One way to accomplish this in the stock market 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. In case one basket of investments doesn’t do well, then chances are the other probably will. If both do well, then you will end up enjoying twice as much success.