Before investing in the stocks of companies, investor have to define his goals is long-term or short-term. Decision about the term of your investment holding is very important depending on the time period the investor is planning some stocks would be become worse or good choice. In this article, I will shed some light on the short term, intermediate term, and long term investment quickly. Before any investor jump in the stock trading simulation it highly recommended for him to understand the methods of stock market trading methods. Also, investors need to learn what kind of the risks they might face depending on the method of trading.
Stock market trading method
First, investor have to sort out how to make a trade by investing in shares. In a very simple way to define this is we can break down the process of investment into three easy steps. In the first step, investor have to look for the shares of the company he is interested in, and decide the shares he want to buy. The second step for the investor is to keep an eye on the prices of the shares he just bought. Final step is to wait for the best time to sell the shares at a price that fetch some returns into the pocket.
Now come to our topic that, investor have to sort out how long he would like to hold the shares. While investor is holding the stocks, he would like to be updated of any kind of news that are about the companies he have just invested his money. These news may change his decision of buying, holding the stocks, and selling them.
When the prices are getting to decline, there are three options available for the investor, buying, selling, or retain whatever he has. The benefit of buying the stocks in the time declining prices the investor just lower the prices of stocks he has, so if the prices rise higher than the price investor have, he may earn more. If the investor decide to sell the stock simply he would lose his money. Investor can also decide to retain stocks longer and wait for prices to rise, and sell it when the stock prices are higher. These three actions depend on your own decisions and there are no explanations available.
Short-term trading method
Short-term covers the period that is less than one or two years. If investor do not have spare
money, or he is hurry to get some cash for some quick payment, it is advisable to stay away from the stock market, and should not even think that stock market can bring him solution for the debt he is facing in short term.
In many of the cases the stocks can be really unpredictable and unexpected in the short term, it is not a good idea for the investor going for short term consideration. A trader in the short run buy and sell the stocks and shares very frequent, so the profit and loss they made from the stocks are not as much. There are further methods in short-term trading: Day trading referred to as holding the shares within a day, Swing trading holds shares for few days, and position trading holds shares for few months.
Intermediate-term trading method
Intermediate-term is the term that is reached when the stocks are held from 2 to 5 years. Investor have to watch out carefully and more technically for intermediate investment, because not all the stocks are good choice for intermediate period.
There are many types and kind of stocks. The share issued by a larger and well established company may be comparatively stable and holds their values well in the coming years. The stocks of small sized and untrusted entities may perform as well as like the stocks of established and large entities. In the intermediate term the dividend is good income for the investor. Therefore the investment should be made in the companies with stable EPS and steady pay-outs.
Long-term trading method
Holding investments for more than five years fall under this head. There are lower risks in the long run and the potential returns are fairly stable and profitable. The investments in the long-run can beat out financial investments, such as bonds and bank investments, in ten year period. But, even the stocks are better option in long run: investor still need to do his homework to choose the right companies to but their stocks. There are still some risks when the companies in which the shares are held are forced to close their business due to unexpected reasons. Therefore careful analysis of pros & cons, and consultancy would be greatly helpful in selecting the appropriate method of stock market trading.
Don’t want to trade on stock market? Read about the differences between Stock and Forex Markets.
Founder & CEO at Unicorn Bay. Masters Degree in CAD/CAE developed several portfolio optimizing products for banks. Has a great experience in investments and math behind the Portfolio Risk Management.