Hello, Buy-and-hold people need to tough it out through downturns, watch their net worth decline, and have enough cash on hand to avoid selling at a loss. I'm wondering what the day traders and other short-term traders live like. It seems like if you cash out each day, and you are equally happy trading a down trend as an up trend, then the day trader keeps making money in a down market, while the long-term investor has his/her patience tested. It seems like day trading has daily stresses. But not long-term ones. Any truth to this? If so, it could be argued that skilled day trading is less risky than buy and hold. A skilled day trader makes money in an up market, down market, or sideways market. The buy and hold investor only makes money in an up-market, makes no progress in a sideways market, and gets destroyed in an epic down market.
Both approaches have their own challenges. In my opinion, trend followers have the difficulty of holding on to long-term gains and have the fear of losing out in case a retracement occurs. Day traders theoretically should come objective to the marketplace each day, but they also have their bias affected by the long-term trends in the markets and suffer from confirmation bias. The choice of deciding whether to day trade, swing trade or invest long term is a question of analytical skills and the willingness to make many decisions or fewer ones. Fluctuations in equity could be just the same for all traders and methods.
Its less about immunity and more about time-based diversification. How long you hold on to an asset is another way to spread your risk. There are advantages and disadvantages to this. You may have higher intraday margin cushion but with larger tax consequences. By carrying only a series of short term positions, be a trend following stock, selling a 6 hour iron fly or straddle, you could achieve diversification from other correlating asset classes. The first hour when 9/11 happened, the market was actually up. After the 2nd plane, that's when the market dropped 5%. Pattern Day traders would've had the advantage to quickly unload the risk due to changing market conditions. That's the argument for HFT and other medium-latency HFT. My understanding is that mega-funds like Rennaissance Capital and Citadel allocates 5 to 7% of capital for HFT, thereby giving "Holding period" as a diversification and non-correlating strategy. - m
Both day trading and long-term investing are essentially the same thing...just applied on different time scales. It all stems on your ability to foresee and/or manage the present applied to the future. One trading instrument over another, or one time frame over another...isn't necessarily better than the other. It's about how you're able to apply and understand it. Everything about the market is a double-edged knife or coin...no knife or coin, so to speak, is 100% bliss. You must have the ability to perform...whether that is for predicting/managing things on a Day trade window of opportunity...or a multi-year investment window of opportunity. Being able to predict the future is an incredibly powerful force...versus just averaging winners with losers and hoping it's a positive number for the end tally. It's like a rubberband or rope or snake or road...if it's straight...it's amazingly fast, if it zig zags...the speed and complication greatly slows it down. You basically already summed up your own theoretical questions or thoughts . -- But can you apply it for the real world, Approach trading...like a Hawk summing up the terrain, or an Army General summarizing up all potential variables -- or like Neo seeing The Matrix. Realize what you know, and realize what you don't know. Let those two elements intertwine with each other like a DNA strand. Assumptions mixed in with reality...they dance and stretch with each other in varying, dynamic degrees. Everything is already in front of your eyes. Like a painting containing hidden messages, or passing your potential future rapist or killer on the street, or the cure for a disease, or a solution to a problem in everyday circumstances. Staring at a chart (in real-time or hindsight)...is like staring at the recording output of a movie camera lens -- what would it look like...if you turned the camera around a complete 180 degrees...you would see another, different world...of regular men and women and stage lights and crew and the director and pages of lines. Kind of semi-think like this within your collective trading,
Conventional long-term buy-and-hold makes sense if you have a large portfolio that generates dividend income. Most of the shares selected will be blue chips in resilient sectors, so their companies should continue to prosper, and their share prices increase over the long run, important as it ensures that the dividend income per share grows. Income from selling the shares is not the object as the idea is to literally never sell them, you hold them forever and they are disposed of when your estate is liquidated - on death. A small number of traders buy shares across the dividend qualification date so they can receive the dividend and hopefully the payment plus the share price fall expected after dividend payment date will still leave them in net profit when they sell the shares to release the capital for the next target. Bear markets don't have much effect on the above.
Strange responses here so far. Daytraders LOVE volatility. Never was so much money made by ET members as 2007-2009. Many of us have been grinding out livings and honing skills, waiting for the next downturn. Little did we know we would have to wait through years of the largest asset bubble in history.