Short Term vs Long Term Trading
Short Term vs Long Term Trading?
Trading longer term is potentially where the big money is.
Yet it can also have higher risk.
Why?
To capture long term trends you to need to work with a wider stop. And wider stops can mean greater give back and potentially greater losses, especially if the market takes a sudden turn.
Generally, shorter term trades allow stops to be tighter. But you’re unlikely to capture those larger more highly profitable moves.
Or can you?
I believe you can – with one condition.
When entering a trade we have no idea whether it’s going to succeed or fail. If it does succeed, to what degree?
Markets will head only so far before they need to correct. They zig and zag back and forth.
I’m a big proponent of Elliott Wave Analysis. Using this we know that in the early stages of a trend, the first pullback of a new trend, the Wave-2, will generally be deep. If we are anticipating a full 5-wave pattern we’ll be starting our trade with a wide stop to make allowances for this initial correction.
Wave-3’s are bullish extension moves. This is where we can start tightening stops whilst allowing for the intraday volatility.
When the Wave-3 completes, the Wave-4 is then generally a shallow pullback.
By now our short-term trade should be in profit.
It’s here where we can decide whether to continue as a short-term play. Keep the stop tight within the next swing higher? Or keep a wide stop to try and capture a larger move north over the longer term.
The dilemma is clear.
If a larger trend does develop, we will catch more of it with a wider stop. And this is where the bigger money is. Yet if the longer-term trend fails to transpire, then giving back some decent open profits will be a consequence of our decision.
There is no right or wrong answer.
The point is short and long-term trading do not need to be mutually exclusive. If a trade is proving itself, there will always be a moment in time where as discretionary traders we can revert our strategy from one-time frame to another.
