A Layman's Guide To The Benefits Of Long Term Trading Vs Short Term Trading

By John Dorian

Both short term trading and long term trading can be effective trading strategies, however, long term trading has several significant advantages. There are several benefits to long term trading, which include compounding and its effect on pricing, the chance to earn from dividends, a mitigated impact of price fluctuations, more alacrity in making necessary corrections and less time required to keep track of stocks.

Compounding

Time can be investor's best friend because it gives compounding time to work its magic. Compounding is the mathematical process where interest on your money in turn earns interest and is added to your principal.

Dividends

You can also hold a stock and thus accrue dividend payouts - this is a second way in which you can boost the value of your investment. Because there are companies that would allow you to reinvest your dividends with more share purchases, you can easily add to the existing value of your investment with little to no hassle. Dividends are also quite indicative of a business' game plan and its overall success, a much better barometer than the invariably ambivalent market trends that often lead to price fluctuations.

Price Fluctuations Have Less of an Impact

The ambivalence of the market in the short term is less of a problem for those who opt for long term investments. Fickle changes in the short term are determined by several factors, which are all addressed by the market. To put it in brief, somebody who engages in long term trading or long term investment will not be overly bothered by short term inconsistencies in the market, which include, but are not limited to liquidity, a specific sector's unusual attachment to a certain stock that could lead it to be over or undervalued, etc. In long term investment, naturally good stocks that may have gone up or down due to some factors or another in the short term, would give some substantial returns.

Long-term investors, particularly those who invest in a diversified portfolio, can ride out down markets without dramatically affecting his or her ability to reach their goals.

Making Corrections

The chances are quite good that you would be able to have constant and consistent returns for some time. It is a basic truism in investment that short term investments would sometimes make a good amount of money but can possibly fail misery in other instances. While it may be possible that you will lose some money in the short term, you must ensure that you have invested in quality stocks and extended your perspective in terms of investment - these two would guarantee in most cases that you would earn favorable returns over a few years' time.

If stocks fail to achieve the desired results not just once, but several times, then it would be justified if you would pull out of that investment. With a long term perspective based on quality stocks, it is easier to make decisions to change in a more timely manner without the urgency that accompanies short term and day trading strategies chasing volatile changes.

Long term trading strategies, in summation, are what anybody needs to have a better chance of exploiting upward market trends and surviving bear market periods - this would basically summarize why long term trading is so much better than short term trading.

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