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TME 026: Short Term Trading

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Today we are going to talk about short term trading. Short term trading can mean different things to different people. We are going to talk about short term trading the way we use it. The day trader would be considered a short term trader but that is not what we want to discuss today. We see short term trading as trades that take weeks to months to catch a trend. We see long term trading as trades that take months to years. We believe that a good trading system should incorporate both styles.

I ran track some in high school. The main reason is because I was forced to if I wanted to play football. I would run the mile and at the time I felt like I was going to die before I finished. It was painful. I always heard that a sprint is different than a mile. A runner has to train different. Now image if someone could train their body to be a long distance runner and a short distance runner all in one person. That person would bring home the gold in a lot of events.

That is what we want to do in our trading system bring home the gold.

There are some markets like the Dow, NASDAQ, and SP 500 that we want our system to capture the yearlong trends. There are other markets like silver or individual stocks that move quickly. In these markets our system needs to react on shorter time frames. Many may not agree that a week to months is short term but for us it is.

 So what is the difference between long term and short term trading?

The main difference between long term and short term trading for us is the range of data that we use. A long term strategy will use a bigger range that a short term strategy. Neither short term nor long-term in our system is concerned with time. We never have a trade that is going good and get out because it’s a short-term trade. We continue the trade as long as the trade is heading in the right direction based on our systems calculations. If a short term trade lasts a year that is great because that means the trade has done very well.

 Different Short Term Trading Styles

There are people who use different short term trading styles. Day traders and options traders would fall in that category. Day traders make their money daily and many don’t hold positions over night. Options traders buy options on stocks, indexes, or even futures. Both of these could be considered short term traders. The problem with both of these styles is that for the most part they are bound by time. The day trader needs to be out by the end of the day. So they have a specified time when they need to be out. The options trader has time built into the price of the contract. A stock or market can move in the right direction but if it does not do it in the right amount of time the options trader will lose money.

In our trading we are looking for the least amount of variables. We don’t want to add variables we want to simplify. Options’ trading is like a ticking time bomb. A contract can expire worthless with the stock still moving in the right direction. Most traders need to stay away from short term options trading.

Conclusion

When trading a system we believe it is good to have a strategy that has a mix of long term trading and short term trading. The long term is more for index and mutual funds. Short term trading is more for stocks. In our trading we want to simplify the process. We want to be able to trade from anywhere. We don’t want to spend our whole day looking at a computer screen. With a good trend following trading system that mixes long term trading and short term trading a trader can trade from the golf course.

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