It would be hard to find anybody who believes that short term traders don’t have a place in the investment markets but that doesn’t mean that their methods are appropriate for retail or part time investors. As new investors, we often look at how others make money and try to emulate those actions.
This can be dangerous to those with little experience. Here are a few habits to limit if you’re a part time investor and want to avoid losing your shirt.
You’ve probably seen pictures of traders surrounded with computer screens that are flashing wildly with green and red rectangles. These screens are filled with numbers, charts, graphs, and news reports all of which have value to those who are capitalizing on short term moves in the markets.
It’s vitally important to monitor your investment portfolio but watching an array of screens and reacting to all of the up and down movements of the market is a sure way to lose a lot of money. Short term traders have access to information that is often too expensive for retail traders and often have years of experience reading their array of computer screens. If you want to get the thrill that comes with trading like that, set up a virtual account and have fun. For most, long term perspectives with their money will yield more gains.
Once you hear about it, it’s probably old news and the easy money has already been made. Fad stocks tend to drop in value as fast as they rise and leave part time investors wondering what happened.
Watching too much Financial TV
Because of the increasing amount of people trying to make quick money in the markets, numerous networks are broadcasting daily programs that cater to the short term trading rules. Long term, income oriented investing isn’t thrilling enough for TV but that doesn’t mean that it shouldn’t be the cornerstone of your portfolio.
Not Enough Fixed Income
Portfolio managers know about diversification. Although they talk more about their shorter term activities, behind much of that trading money is a massive amount of fixed income investing. Are you doing that? Is a significant portion of your portfolio sitting in high yielding bonds? It should be. You can still keep a portion of your investment money allocated to trading but the chances of huge gains with that money are slim.
Short term trading and day trading aren’t the same. Short term traders keep positions for multiple days through multiple months. Day traders start and end their day with a zero balance. If statistics are true, most are losing money.
Just because somebody says that they’re making money in the stock market doesn’t mean that they’re being truthful. Retail investors who take part in a lot of short term trading don’t make a lot of money, according to statistics. Don’t fall in to the lie that fast gains without advanced knowledge and experience in the markets are possible.
If you want to gamble, go to a casino. Presumably, you’re investing in the markets because you’re trying to make money over a long term period. That is exceedingly difficult to do if all of your money is allocated to short term trading.
(Photo: petrick )