I know a few rich people who are long term investors as well as short term traders in the Stock Market. I have a lot of respects for them, since temperamentally it is difficult to be both. Long term investing implies identifying value stocks, buy them and virtually ‘forget’ about them. Short term trading requires constant watch. How do these seasoned people manage both? It is truly a million dollar question!
Whatever, we are discussing here mat not be relevant for beginners in Stock Market, but they can understand how the seasoned people (who are both investors and traders) think and act. Such a study is priceless and improves their ‘Financial Intelligence’.
I have understood that people who have the versatility of being both long term investors and short term traders follow a clear strategy using the following steps:
- They allocate separate resources for trading and investing and keep the accounting simple and clear.
- They don’t mix the approach. For example, for investing they choose fundamentally strong shares and for trading they prefer shares with high volatility.
- They follow Fundamental analysis for investing and Technical Analysis for trading.
- Some of them have separate mentors for investing and trading.
- In trading, they go both long (buy) and short (sell). Of course, in long term investments, they only go long.
- In trading, they change their opinions on the direction of a stock based on technical analysis, without any sentimental attachment. They cut their losses using the concept of stop losses. They don’t mind taking several small losses and make one big gain!
- In every major dip in the market, they buy fundamentally strong shares at bargain prices.
Of course, there can be more to the above ideas followed by some of those seasoned people. What I like in them is their passion for educating themselves on the Stock Market on a continuous basis. Beginners can learn a lot from them and do a lot of book trades (buy and sell on paper) and fine tune their approach in consultation with their Financial Mentors.
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