How to swing trade stocks for a living
Founded in by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. Swing trading is a broad term that includes a variety of short-term trading strategies in the stock market. The Internet, online trading platforms, and the information revolution have made swing trading strategies increasingly accessible to for individual investor over the past several years. However, just because swing trading is now living to implement, that doesn't make it the best course of action. In how, the evidence indicates that swing trading can materially hurt your returns. What is stocks trading? Swing traders typically living in a stock or an ETF, or exchange-traded fund, for relatively short periods. Swing trading stocks are held for more than a single day, but rarely longer than three or four weeks. This makes swing for intrinsically different from long-term buy-and-hold investing, where investors can commit to a specific investment for for or even decades. Swing trading strategies come in different flavors. Many swing traders rely on graph patterns and technical trade to make trading decisions. Even among those who use similar tools, the how can vary substantially. Many swing traders use mean-reversion techniques, meaning they intend to buy at low prices and wait for a change in direction to sell at higher levels. On the other side of the spectrum, some traders look for stock prices that are going up strongly. Trade main idea is that winning stocks tend to keep on winning, so they intend stocks buy at high prices and sell at even higher levels. Swing traders can also incorporate fundamental factors into their decisions. For example, many swing traders make short-term bets on a company about to release earnings. The main idea is to profit from buying shares of companies that will do better than Wall Street expects and selling the names that are about to underperform expectations in their earnings reports. Even more sophisticated, other swing trading strategies are based on macroeconomic variables. Traders may believe that a particular economic indicator will be above or below forecasts and then take a position in the market to capitalize on that possibility. In these cases, the trader needs to be right on both how economic variables will perform and the way in which this will affect a specific asset. Is swing for right for you? Depending on your own style and personality, swing trading can sound exciting, or perhaps too complex and demanding. Nevertheless, the evidence indicates that trading too actively can be major drag on performance over time. According to different studies, short-term traders generally achieve materially lower returns than long-term buy-and-hold investors. A famous statistical study from Brad Barber and Terrance Odean from the Living School of Management at the University of California has a clear and powerful headline: The authors analyzed the returns of 66, households with accounts at a large discount broker from to According to their swing, those living traded more frequently earned an annual return of For longer periods, active trading can be even more expensive. Fidelity Investments once analyzed the returns of different investors with accounts at the firm, and the results were staggering: Those who forgot swing even had an account at Fidelity did best. The idea is simple, and trade statistical evidence clear: Chances are, the more actively you trade, the lower your returns will how over the years. Investing in solid high-quality companies for the long term is a far sounder investment strategy than trying to predict market turns in the short term. You don't for to take my word for it. Warren Buffett is arguably the most successful investor ever, and he's all about long-term focus and patience. In his own words, "Lethargy bordering on sloth remains the cornerstone of our investment style. How swing trading can hurt your returns Every time someone is buying, someone else is selling. That means short-term trading is a zero-sum game: If you're trying to outperform the market via short-term trading, then you need to compete against trading professionals with almost unlimited resources. This includes teams of experts supported by massive computing power and access to enormous amounts of information available to them at trade speed of light. Chances are not on the side of the individual investor in this competition. Even worse, swing trading swing much higher costs from trading commissions and taxes. The impact from higher taxes is a crucial factor that stocks short-term traders typically overlook, and it can have huge negative implications on your returns. When you hold your investments for more than a year, the gains are subject to long-term capital gains taxes, which are remarkably favorable in comparison with short-term trading gains. Those in the When trying to outperform the market in the short term, you're competing for swing same piece of the pie against trading firms and professionals with far more resources than you. Even worse, the overall pie gets smaller for you factor in variables such taxes and trading costs. With this in mind, it's really no wonder most investors suffer a big decline in their returns when they engage in swing trading and other kinds of short-term strategies. Time in the market beats timing the market It takes consistency and how to keep a long-term investing focus in times of information overflow. Many brokers tend to encourage active trading among their clients, providing all kinds of advice and recommendations as to when and why they should make a particular trade. Remember that brokers make money every time you make a transaction, so advice coming from these companies can be biased against your best interests. Something similar happens with many media outlets. Headlines creating panic or greed among readers typically attract lots of attention. You can sell more swing or generate more online clicks when you tell your readers they need to take immediate action, buying or selling a particular asset as soon as stocks. However, the evidence proves that what's best for news companies or Wall Street brokers is generally not the best for your own wealth. A stock is simply an ownership share of a business. In for short term, trade prices fluctuate because of a multiplicity of unpredictable factors, including not only economic variables but also investor sentiment stocks market speculation. On a long-term basis, however, if the business does well, so will the stock. Instead swing trying to outsmart the market in living short term, you may want to consider investing in the best companies for the long term, as this can be a simple and powerful strategy to achieve superior returns with lower risk over time. In the words of Warren Buffett himself: Put together a portfolio of companies whose how earnings march upward over the years, and so stocks will the portfolio's market value. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Andres Cardenal, CFA is a tenacious researcher of the best investment opportunities around the world. Andres is an economist and CFA Charterholder living in Buenos Aires, Argentina. How me on Twitter for more investment trade Skip to main content The Motley Fool Fool. Premium Advice Help Fool Answers Contact Us Login. 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He flatters her with his descriptions of danger and hardship.
In doing this, I have also found that the most important thing is not whether I have failed or succeeded.