Almost everyone who is in the stock market has a few long term investments. Maybe they bought a few ETFs that they believe will go up in the long term. But along with your investments it is a good idea to place some short term trades.
The real benefit of short term trades lies in compound interest. If you could make 10% in a month it beats making 10% in a year. Yes trading the market can have high risk, but that risk can be minimized with stop loss orders, and position sizing.
Now, I’m not saying that everyone should sell everything and go into short term trading, but learning to trade can be a great way to increase the return in your portfolio.
Here are some tips for anyone looking to trade the market.
1. Develop a strategy. If you don’t have a strategy for trading the market you will be just another one of the herd running around in circles letting the news and your emotions make your trading decisions. Know what your buy signals and your sell signals will be before you start is the first step.
2. Paper Trade. Having a strategy for trading is great, but unless it is actually working you don’t want to invest with your own capital. Paper trade your strategy for a few months before you commit any real money to trading.
3. Start small. Don’t sell every long term investment you have and start trading the market. Start small; maybe at first donate 10% of your account to trading. Once you feel comfortable maybe increase that to 20% of your account.
4. Keep some investments. Keeping some money in safer investments makes it easier to trade. If you are only trading with 30-40% of your account it will have a lot less of an emotional impact on you then if you were trading with 100% of your account.