Friday, December 05, 2008

Stock Market Investing - Is It For You?

What's wonderful about the stock market is that there are many different approaches and strategies an individual can implement if they wish to participate in the up and down gyrations of stock prices. Some people prefer to trade short-term with a holding time of 1 to 3 days while others are much more comfortable holding stocks for a period of months and even years. If owning stocks for such a long period of time is your style of trading, then you are considered to be an investor.

Stock market investing over the long-term is not as easy as it may seem. I remember years ago you could just buy stocks and hold them for many many months and they would continue to appreciate in value but in today's market that approach will not make you money. The characteristics of stocks have changed due to many factors which means we must change as well if our goal is to make money.

There are many stock market participants who prefer to day trade because they don't feel comfortable taking a position overnight due to the risk of a gap the next morning. By closing out all positions at the end of the day, a trader can eliminate their overnight risk exposure. This sounds great but be aware that day trading is very demanding because it requires a trader to be in front of their computer throughout the day. Commissions also play a factor so if you do decide to day trade, be sure you are paying low commissions. Even though I've day traded for many years, this style of trading was not for me and I found it to be quite challenging.

OK, so if stock market investing over the long-term is no longer a profitable strategy and day trading is too demanding, what's a trader to do? Well for me personally I like to swing trade which basically means I am holding stocks for 2 to 5days on average. This style of trading is what I am comfortable with and fits my personality. What I like about swing trading is that I am able to find a few good setups every month and yet not have to be glued to my computer screen on a daily basis. Swing trading is also slower paced than day trading which means I have more time to plan my trades as well as scan for new opportunities.

As traders we are all different and what may be good for one person may not necessarily be good for another. Stock market investing that is geared towards the buy and hold strategy will not serve a trader well in the current trading environment. Whether a person chooses to day trade or swing trade is of course up to the individual. The important thing to keep in mind is to find a method that gives you an edge and be consistent in the application of your chosen methodology and I'm sure you will find success.

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