TME 024: Long Term Investing


Long term investing or long term trading can mean different things to different types of investors or traders. If you are a day trader then a strategy that trades weekly will be long term. Some define long term as holding an asset for an extended period of time. The time could be as little as one year and as long as 30 years.

Advisers usually advise to invest for the long term but the long term is subjective. A buy and hold investor may consider long term 5 to 10 years. While a day trader may consider long term investing 5 to 10 days.


How do we define long term investing?

We define long term investing as however long it takes to capture most of a trend. Market go up and down daily. Over the weeks a market may begin to trend. As it bounces up and down the short term trading strategy may get stopped out. In long term trading the range is set so that a trader does not get stopped out as much.

For example the stock market has a good trend for the last 100 years. We know that within those 100 years there are good up trends and then there are times when the trends are flat or down. The long-term trader wants to be out of the market or short in the down trends and in the market on the up trends.


Should I use long term investing?

We believe that ever trader or investor should have a long term investment strategy as part of their trading system. The market has a pretty good past performance record so we want to capture that performance in the system.


Do we consider long term investing or trading buy and hold?

No. Long term investing is not buy and hold. A buy and hold strategy is one where an investor buys a stock or mutual fund and holds it indefinitely. They are not worried about market movements or market fluctuation. They have no system in place when the market turns down. This strategy is what most people’s 401k’s are made up of.

If you are a long term trader it may look the same from the outside but the insides are much different. For the last 7 years the stock market has done pretty well the long-term trader would have captured those gains. If the economy turns down like it did in 2008 then the long-term trader would get out. They would have their exit predetermined based on mathematical calculations that they run daily, based on price. Once their system gives them the sell signal then they would get out. The system would then give new buy signals to tell the trader when to get back in.


The buy and hold strategy has worked for many people. It did not work for those ready to retire in 2009. The market did come back but it doesn’t always come back.



Everyone needs a long term strategy, but when everything goes south there needs to be a system in place that gets you out of the market. There needs to be a system that tells you when to buy and when to sell. As a long-term trader you need to trade with both eyes open. In the financial crisis the advisors said throw your statements in the garbage and don’t even look at them. That’s nonsense don’t be a blind investor be a long-term system based trader.


System Performance 2015

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