Steve
Nobody says I can't do it <gggg>
That is the question I would like to address in this, my first column on TigerInvestor.com. As I explain in my accompanying Bio on this site, 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 that I'll describe in my columns, 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.
In my next article, I'll start with the most important principle, relating to money management, which you'll hear over and over is the most important thing to pay attention to. I'll describe a technique that I've refined, based upon key tenants of trading wisdom: "The Equity Curve" system for monitoring your results on a daily basis over time. This is simply my implementation of a methodology of monitoring your equity level, to give yourself feedback which will improve your trading and avoid pitfalls. It is a cornerstone technique that can become one of the bedrocks of short-term trading success.
In subsequent columns, I'll go on in some depth to describe specific trading vehicles, specific trading techniques, and various short-term trading issues that I've found useful or insightful, and some important things to watch out for as your trading evolves. Some of the topics I'll address will include:
How to develop your own short-term trading style; where to target your rate of return
Swing-trading (e.g. 1-7 days) vs Day Trading (<1 day)
Using Multiple Time Frames to Trade: why it's so important
Using Technical Analysis plus Price Patterns to enter stock trades
How and why to control your losses with stops: the essence of trading
Some Dangerous Pitfalls in trading – "the dark side" of trading
How to use Stock Market "Sectors" and Indexes to improve your trading
Who are the stock, option, and futures trading experts you should be listening to?
Should you use a Direct Access Broker (ECN), or a Web Brokerage?
What kind of computers, software, and data feeds do you need to trade?
Selecting Trading software and data feeds – how to save yourself a lot of time
Some key trading books to study and have in your library
How to evaluate training courses, seminars, and fax services before signing up
In the meantime, Good Trading!
- Palo Alto Trader
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