Pros And Cons of Long-Term Trading

Pros And Cons of Long-Term Trading

Long term trading is about buy-and-hold trades. Depending on your time horizon long-term investment offers maximum profits in comparison to short intraday trading time. There is no minimum starting capital, but take care of commissions if you are trading small amounts of capital in the long term.

Creating a long term investment strategy will take enough time at least in the starting. Long term trading required the discipline of sticking with your stocks even after an upward graph by many multiples, especially when you have an idea of further upside potential.

How can an investor get the idea of being profitable with long term trading? Investors rely on different analysis for estimating the future value of a stock - Fundamental Analysis, Qualitative Analysis, Technical Analysis. This helps evaluates the long term performance of companies and hence the impact on their stock value. Long term investors deduce whether a stock is undervalued or overvalued and hence make the trade decisions. Unlike day traders who take in to account the price fluctuations during the day, long term investors rely on the company’s fundamentals.

Pros of Long Term Trading

Time Commitment

There is no requirement of spending a couple of hours daily to watch stock activity, like intraday trading traders. By researching a couple of hours in a month, will be able to find the right stock which meets the criteria of your investment strategy. 

Minimize the Risk

Long term investment minimizes the risk of price fluctuations in volatile stock markets. Whether your current risk is low or high, investing for a longer horizon, evens out the fluctuations on a monthly or annual basis. Thus, as an investor with time to stay invested, you can earn risk-less returns on your stocks.

Compounding Returns

Investors will earn higher returns using the power of compounding over the long term even with the small investment amounts. 

An Equation without Emotion

Long term traders are rational decisions and free from emotions of short-term volatility.

Cons of Long Term Trading

What if Stocks don’t Meet Future Expectations?

There is the risk of losing principal if the stocks fail to meet your expectations of yielding good results but there is a constant decline in the stock value, resulting in wealth erosion. You have to continuously monitor and rebalance your stocks portfolio as well depending on your changing financial goals. 

Test of Patience

Long-term trading blocks your capital for a long period. You might feel stuck over a period. Also, if you need wealth for a short-term duration, you might have to wait for more years to achieve the desired returns.

In-depth knowledge

To invest in long term stock, no one can determine the stock value and returns keeping in view the current economic situations, news, and tips. In-depth knowledge is required to find out the profitability of a stock. To become a successful investor, you have to build this knowledge over a period of time from various sources. Another way can be paying for the services of a professional stock research service to help you pick stock as per your risk appetite. 

The Bottom Line

To start trading, you need to open a trading account online with a reliable stockbroker. It is advisable to go for a broker who charges a flat brokerage fee per trade as against the traditional volume-based percentage brokerage as you can significantly save on brokerage costs with the flat-fee model.

Long term trading is viable in terms of potential returns, capital requirements, and time commitments. Investors should focus on strategies to make it more viable.
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