Hi ET members. Recently, I had a small debate on the risk of trading/investing style- Long term or Short term trading. It was initiated by a simple question from a beginner in a bulletin board (in a foreign language, so cannot link) - 'Which is profitable? Short term or Long term?'. I replied, generally hard to say which is profitable since there are various successful traders with their own styles, however, since I see short trem trading is more risky, long term trading would be the answer for the beginners. Then, another guy kicked in, and he said 'in the trading world, short term trading is less risky.' Yes, there are many factors in this issue such as what kind of level of the trading skill the trader has, or how do you define long-short term trading, but all in all, please vote, and let me hear your insight. I dared not to have an option 'hard to answer'. Best Regards, Ken
So, my opinion is like this: Investing is Not Zero-Sum game since extra capital flows-in in longer term period. However, the shorter time period the trading style becomes, it has more character of Zero-Sum game. Winner's gain is Loser's loss. In my understanding, merely 10% of winners group exploite the 90% of losers group money. In long term trading, there is less trading-noise such as commision risk, excution risk and so on. If a long term trader's prediction is correct, such as Yen will rise or Macromedia will boost, the trade is likely profittable. Here, there is no chance for the pro to exploit from this trader. On the other hand, in short term trading, many factors to be controled is arrised, and if a trader perfomes many trades, there are chances to be ripped off from various sharks in the market. Therefore, IMO, short term is more risky.
Another stuff. We actually have had 'daytrading restriction' for a while. I think this is from common recognition of the risk of short term trading. Day Trading Risk Disclosure Statement by brokers is an example, too. Again, I don't define daytrading as short term trading to be exact, but daytrading is definitely the one form of short trem trading.
Just to make sure. I myself is an intraday trader, but I know how to contorol the risk. I suppose many here are short term trader, and think it's not risky for you. What I'm asking is risk in general including novice traders and, not risk FOR YOU. Thanks for any comment.
I believe the question is not correctly put. It seems to me that you are actually asking which trading time frame offers more favorable risk/reward ratios... We must always evaluate the risk in relation to the reward (and visa versa). Now that is the objective side of the problem. We must also take into account the subjective side - in which time frame you have a comparative advantage over your competition to exploit those higher risk/reward trades. Are you faster than the fastest scalper, are you more informed than the most informed long-term investor?... So I guess the correct answer to your original question is: "It depends!"
there are many ways to look at it. one way is this: it has been said that 90% of short term traders fail but it is fact that 0 long term investors in the broad market have ever failed over a 10+ year period.