All you want to know but never asked about the stocks and options markets.

domingo, 19 de octubre de 2014

Day Trading vs. Long-term Trading - Which is better?

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Both the short term and long term stock trading can be effective trading strategies, however, long term trading has several advantages compared to Daytrading. These include the effect of compounding, the opportunity to earn dividends, reducing the impact of price fluctuations, the ability to make corrections in a more timely manner, less time spent tracking your investments and other.

Here we will explain in more detallers these advantages.

The capitalization 

Time can be investor's best friend because it gives time to the concept of composite gain ​​to work its magic. Compounding is the mathematical process where interest earned on your money in turn earns interest and is added to your principal, causing your investments grow much faster.

Dividends 

Holding a stock for long term lets you take advantage of dividend payments, increasing the value of an investment. Some companies offer the ability to reinvest dividends to buy additional shares, thereby increasing the overall value of your investment. Furthermore, dividends are more a reflection of the business strategy of the company in general and its success than volatile price fluctuations based on market emotions.

Reducing the impact of price fluctuations 

In the long-term investment investors are less affected by short term volatility. The market tends to address all factors that cause changes at the short term. So a person involved in the long-term investment will not be affected much by short term instability due to factors such as liquidity or movements that may cause the price of a stock goes up or down without reason. In the long run, good stocks generally recover from short-term movements. 

The long-term investors, particularly those that invest in a diversified portfolio can withstand without dramatically affecting their ability to achieve their goals.

The trader can correct their investment mistakes 

It is very likely to achieve a consistent performance over a long period. But there will be times when your investments earn less and other times when you win a lot in the short term. There may also be times when you lose money in the short term, but since you are in quality stocks (supposedly) and have long perspective for investment, sometimes is better to re-evaluate your investment to see if you can earn a good return over a period of time. With a strategy of long-term investment, you can make these decisions without emotion, analyzing the stocks to see if there is earning potential over a period of 2-3 years. 

There may also be times when some stocks do not perform and the trader have to abandon these investments. With a long-term perspective based on quality stocks, it is easier to make decisions to change your investment portfolio in a more timely manner without the urgency that accompanies short term trading and daytrading. 

Investors that remain on the market at long term are much more likely to survive bad times and capitalizing on the periods when the market is growing.



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