Short Term Investing

In the past, short term investing was mainly for people who were active traders trying to profit from intraday price movements with no intention of holding any positions for the long term.

Semi-Active Traders would seek to profit from daily price movements, again over a short timeframe, not for any considerable long term periods.

During periods of market extremes, either to the upside or the downside, many long term investors switch from having a long term outlook and become involved with short term investing instead.

This becomes even more noticeable when the intraday and daily volatility of prices increase and large percentage movements become more and more apparent.

For most of my life, people of all ages have always said "Buy and Hold for the long term". While this has been the case when looking at a long term chart some of the time, we can also see that there can be periods of declining market values that are significantly steeper and of such large percentages that any previous years gains can quickly be erased.

Long Term Investing
(You can click on the chart for a larger, clearer image)

Take a look at the 15 year chart above and consider the buy and hold long term investor. This observation brings about the importance of having a trading or investing plan with some type of exit strategy in place, whether involved in long term investing or short term investing.

For example, a long term buy and hold investor who bought a stock for $25.00 in 1990 and see in 2007 that the same stock was now worth $50.00 would be wise to have had a stop loss in place. If not, it is possible that they could have seen the same stock go down below $25.00 over the next 1-2 years and have an unrealized gain of zero at best. With a stop loss in place, they could have captured some of the profits they had without allowing the position to turn into a losing investment.

Unfortunately I know, and maybe you do as well, many people who are long term investors who seem to hold on forever. They have no exit strategy for any of their positions, unless they need money. They do not believe in the idea of short term investing.

Now let's look into short term investing. If you are this type of investor/trader, hopefully you understand the importance of having an exit strategy and follow rules that you set in place ahead of time.

Some examples of different types of trading for shorter time periods would be:

  • Scalping: Trading in quick timeframes often within minutes or seconds.
  • Day Trading: Seeking to profit from intraday price movements throughout the day.
  • Swing Trading: Seeking trading opportunities over several days to several weeks.

While these shorter term investing techniques provide many more trading/investing opportunities, they can also be riskier without the right education and training.

Take a look at the next two short term charts and the trading opportunities that existed. The first chart is a one month chart and the second chart is a ten day chart.

Short Term Investing 1 Month
(Click on either chart for a larger, clearer image)
Short Term Investing 10 Days

These two charts show a price movement from the highs to the lows of 40-50% or more in some cases. If you were a buy and hold investor through this, you would have to make sure you had your seatbelt on, and maybe a rollbar just in case! Holding on to a position through these swings is enough to give you an ulcer at the least.

Instead, being a short term trader or investor and using a good entry and exit strategy would help eliminate having to hold on to positions during some of these wild fluctuations.

Return From "Short Term Investing" To "Stock Trading Strategies"

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