Which Trading Style Fits You?

Which Trading Style Fits You?

In my 20's, I started out on a trading desk where traders rarely held any positions overnight. They were day traders who got in and out of their trades in a matter of hours – and sometimes minutes.

As my career evolved and long-term investing became my focus, I shifted my goal to owning Perpetual Dividend Raisers for years. Now I find stocks that my readers should be able to hold indefinitely as the companies raise their payouts every year. But that’s investing. On the trading side, it’s appealing to be in and out quickly.

With some stocks, you have to wait a few weeks for a catalyst or technical pattern to play out. And that’s fine. There’s nothing wrong with earning double- or triple-digit returns in a few weeks or even months. Most investors would be thrilled with that kind of performance.

However, some traders like the action and don’t want to wait weeks for the payoff. They prefer to be in and out in a matter of days, sometimes within the same day.

While trading is more speculative, some risks are eliminated. For example, you can’t get attached to a stock because you’ve held it for a long time or because you believe in the news story surrounding it.

Intermediate-term traders typically own stocks for a few weeks or longer. They’re waiting for a story to play out, such as an earnings report, a drug approval, or a completed chart pattern. They’ll usually set stops that give the position some room to move. That way, they won’t get shaken out by market noise, but they also won’t suffer too large of a loss if the trade goes against them.

Shorter-term traders will hold a stock for a few days or less. They’re usually exploiting strong moves in the market or stock. They’ll typically take smaller (but perhaps more frequent) losses in exchange for more frequent trading opportunities and wins.

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