Now that you want to become a specific type of investor, let’s take a closer look into what comes with the package.
Read Part 1 If You Haven’t Yet
Let’s continue.
Due to the difference in investing styles, it might also affect your mood (life) differently. Please don’t neglect this, as it is crucial to contribute to greater success. Again, this website is about mindful (healthy) investing in general, because it goes hand in hand.
Day Trader
Mainly focus on trading with technical indicators – VWAP, MACD and RSI are your best friends.
Usual trading sessions for day traders are within the first 2 hours after the market opens and an hour before the market closes, because it has the highest trading volume and volatility. It means you will be occupied during these time sessions.
You should also set a strict trading method and can establish swift decision-making because you are trading within minutes or even seconds.
Is day-trading suitable for you?
It is a highly focused investing style in a short amount of time when high self-control is necessary. If you are a person who has a high mood swing or cares about the money very much, this might not be for you.
Swing Trader
Mainly rely on fundamentals and also technical indicators like a day trader would. The difference between the two is that swing trading has a larger time scope. It can be both a good thing and a bad thing.
The good part is – you don’t need to be stressed every day nor watch how the stock is performing 24/7, you just need to set a stop loss, give it a time frame, and that’s it.
The bad is – if you are wrong, you will be spending more time proving yourself wrong. Time itself has a value too, so you may lose the same amount of money as a day trader does in a day plus a lot of time cost.
Is swing trading suitable for you?
If you want a lower stress level from investing, I highly recommend this. Apart from value investing, this is one of the least attention-required investing styles. You don’t need to consistently monitor price action. You can go on with your everyday life like usual.
However, if you are a person without patience, and you want to have more “control”, this might not be for you. Because you have to keep your investment for a long period of time. And within this time slot, anything can happen.
For example, gaming industry giant – Activision Blizzard (AVTI) fell 14% in one day in 2021[1]. Although it has a strong balance sheet, sexual harassment news from the company and the announcement of postponing the release of two major title games, brought it down tremendously. This is not something you can predict.
Therefore, the likelihood of encountering unpredictable events increases as the time frame expands.
In simpler terms, the longer the duration, the greater the chance of unexpected occurrences.
Value Investor
If you want to become a value investor, you must already know who Warren Buffet and Peter Lynch are. They are the role model of this approach. They suggest buying an “undervalued” company and holding it till only when the company has a change in its business model.
Common evaluation methods include but not only the use of P/E, P/S, quick ratio, debt ratio and value comparison with similar companies in the same industry.
Is value investing suitable for you?
It is arguably the most carefree strategy to invest. However, this approach requires a lot of time to research before you place the order. It also means you need to check every financial report the company will be publishing per quarter – to make sure the company does fine. So, the effort is there.
The underlying risk is you don’t know when it will increase in value, you just believe it will. Currently, the company is in your view “undervalued”, even if you are right, you still need to wait till it does. Even if it could mean many years later. Or even worse, you could be wrong.
Conclusion
All in all, the above guidelines are here to provide a general overview. It does not mean that you shouldn’t be a day trader if you are a moody person. No matter which type of investing style you prefer, the main stress factor always comes down to “how much” you are betting, and how you are reacting to your investment while you are holding it.
Investing and trading are not for the faint of heart. Successful investment always come from well planning, risk management and courage.
You must know what you are doing AND what you would do if a certain scenario happens. Some people are afraid of ghosts not because of the ghosts themselves, but of the unknown they are afraid of.
To prevent impulsive decisions, a comprehensive plan is needed for every situation. So you won’t have anything to fear for. As a result, you can trade with accuracy and confidence.
Personal Take
I prefer to swing trading over at least a few months because I believe that a big trend is easier to “predict/observe”[2] over a day trend.
For example, an economic downturn usually last for months if not a year[3]. So, I could enter within this time slot even late entry, say for a month. I could still make a profit because the time frame for both entry and exit is longer than a day or week trend – higher flexibility.
Moreover, I don’t have to monitor the stock market all the time. So I can focus on other aspects of life.
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[2]: Many people agree on “don’t time the market”, I’d argue that whoever buys at a certain point, then sells at a later point – This action itself already established a time frame.
[3]: The U.S. has experienced 34 recessions since 1857 according to the NBER, varying in length from two months (February to April 2020) to more than five years (October 1873 to March 1879). The
– Read More On Investopedia average recession has lasted 17 months, while the six recessions since 1980 have lasted less than 10 months on average.
