There was a time when being nimble in and out trader used to be regarded as a nerve-racking, stress-filled activity. It was also believed at the time that holding all stocks for the long term was the only safe approach that helped the market player stay sane. However, today’s excessive market volatility, coupled with its frequent bouts of weakness that commonly produced erratic movement, has almost compelled market players to become more short term.
It is during the market’s most troublesome times that we feel exceptionally fortunate to be short-term traders. The long-term approach to the market, while forever viable, really get tested to the limits when the market moves into a state of panic. When things are not going well, and an angry market seems determined to make you feel its wrath it may hurt. But know that long-term players almost always get hurt more, being short term is better in today’s market.
The incisive swing trader knows that the odds of being right over the next few days, as opposed to the next few years, are immeasurably greater. The incisive day trader knows that the odds of being right over the new few hours, as opposed to the next few days, are far more favourable. And the incisive micro trader understands fully that the odds of being right over the next few minutes are impressively better than they’d be over the next few hours.
You should never lose sight of the fact that good traders, in their most basic form, are master of odds traders. While it is true that absolute certainty can never be achieved, traders do have the power to skew the market’s odds to a highly favourable condition by operating in a shortened time frame. The very best traders understand this, which is why the very best trader tend to be short-term oriented in their market view and in their market approach.
Today’ being a nimble, short-term trader means staying more stress-free. Watching a stock you own drop 40% is a very stressful situation, , while watching a stock drop 40% from the sideline is not. To our way of thinking, there is no excuse for allowing a stock to move against you 40%. The best traders would never do such a thing. Why? Because they believe in the following points:
- When in doubt, it is best to get out
- You can always get back in
- Selling out also clears the mind
- A 5% loss on stock that drops 20% is a win, not a loss
- A good defence is at times the best offence
- Stepping aside guarantees that you have capital allocation live to play another day.
Playing the market long term with mutual funds, and carefully selected blue-chips will always be a viable approach for retirement-type investing. But for money outside those vehicles, the short-term time frame rules.