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Should You Day Trade or Hold for the Longer Term?

Is day trading really something new? I don’t think so. Even if we have traders who use various styles of trading, such as momentum trading, Elliot Wave trading, trend trading, channel trading, and so on, it is a fact that many professional traders have always made day trades. For some, a day trade may mean that the trade entered was a losing one and, thus, was exited instead of holding overnight.

For others, day trading profits may be a welcome extra profit besides holding longer lasting positions. Sometimes, if the market gives you a windfall profit in one day, it is best to take profits at the end of the day because there is a good chance that the market will open down the next day.

The big money is made on capturing the larger swings in any market. However, these types of opportunities only come along a few times a year. I believe that in today’s market, these consistent larger swings become fewer and fewer.

For novice traders, I would advise to forget about the longer-term trades, place less emphasis on playing for higher-percentage returns and, instead, learn to trade on the shortest of time frames, foregoing carrying positions overnight. The smaller the size of your capital base, the less risk you should take on. The longer you hold a position, the more exposure you have to the markets and, thus, the greater the risk. Also, execution skills will ultimately play a large role in your overall profitability. Constant practice getting in and out of the market can be the key to your learning curve. Only with practice will you learn to get the feel of placing orders at just the right time. I believe it is only after you have made numerous trades that there is a lessening of the emotions and anxieties that invariably go along with risking your money by trading shares.

Perhaps the way that I approach the markets each day will give you, as a new day trader, some ideas. The night before, I analyse the daily charts to see what trending environment we are in and note if there are any chart formations indicating distribution or accumulation or a likelihood of crossing Moving Averages. Break-outs from chart formations tend to lead to the better position trades. In the morning before the market opens, I read the business news and listen to the radio to see what is happening in the financial world. I want to be right on top of any possible break-outs, because a late entry on these can often mean that I miss a good opportunity.

It does not take very long to go through the individual charts, concentrating on the strongest sectors. Next, I try and assess what type of a day we are expecting. Is there potential for a trending up or down day? I also make notes of individual stocks if there is a key pivot about to come into play, perhaps a cross over of Moving Averages. I usually have anywhere from 10 to 15 different charts on my list for the next day’s trading.

The next morning, I will be ready to take advantage of any opportunities to open longer-term position trades, but these conditions may only happen rarely in today’s market. I try to make anywhere from one to five day trades during the day, they could be Contracts for Difference (CFD) or full shares, depending on the margin required and level of my trading capital. Most often, I find that there is a main trend for the day, (often down these days) and in this case, the market can be worked most efficiently when trading with a bias to the long or short side for the day.

It also requires a lot of alertness and thought to manage existing positions. One of the hardest things to learn is to stay with a trade that is working. Lots of patience and preparation goes into finding the trades, don’t waste these opportunities. This can sometimes be where the big money is made, but only if you are not tempted to take your profit too soon. Believe me, I often take profit to soon, but on the other hand, I must stress, better take it to soon than letting it turn into a loss. And for a position that is not working as expected, then you must be quick to take your stop loss. I find that I can do that best if I have already placed my automatic stop loss order and trail it up. So, regardless of whether I am simply making short-term day trades or monitoring longer-term positions, much time and preparation is still done when the markets are closed for all types of trading.

Day trading can be a great deal of work, since you must constantly be looking for new ideas and trade setups. Look at my Day Trading page for ideas. Serious concentration is necessary each time a trade is about to be entered.

I find that for maximum profitability, one should not limit themselves to one style of trading, nor should one draw too sharp of a line between time frames. At certain times of the year, there may be choice opportunities for establishing long or medium term positions. These trades can lead to good profits. However, until these occasions come along, you still want to trade and make some profit. The ability to consistently take small profits out of the market on many days is even more important than playing for the longer-term positions.

I believe if a trader is willing to give his time and energy to study the market, apply technical skills and has the proper ability and proper personal makeup, then it seems quite certain that the trader will make greater profits on the shorter time frame as opposed to long term trading.

Certainly I believe that in today’s market, the possibility for such profit is much greater in short-term trading. .On the other hand, if you are unable or unwilling to give up a good portion of your time and energy to the study technical considerations, prepare for your trades and sit at the computer, or find yourself unfitted  psychologically for short-term trading, success may of course elude you.

One thing is for sure:

There will always be a lot of other tempting opportunities around, but if you go hopping around, you will mostly likely NOT succeed. Similarly for seminar junkies who sign up for courses after courses and produce very little result, the lack of focus is their biggest downfall.

A lack focus is thus one of the biggest and most common reasons why beginners do not succeed. This is also true for people with other commitments like a full-time job. Therefore, staying focus is very important.

Staying focused requires you to have a clear and strong enough goal. You need to know what you want exactly; even down to details and work towards it everyday. Planning your tasks and milestones is also crucial to staying focus.

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