Short-Term Investing in Stocks
When private citizens consider getting into the investment business tobuild their wealth or prepare for retirement, the stock market is often the first thing they try out. This is because it's accessible, even to non-accredited investors, and relatively easy to understand. Buy a share of a company to get a piece of the cake in proportion to how well the company is doing. And while stocks may not be entirely risk-free, they are significantly less risky than derivatives, for example.
How to Find Short-Term Investments
In short-term stock investing, timing is key, as you need to find good investment opportunities that will pay off within a short time frame. This is wheremoving averagescome in. This metric describes the average price of a stock over a certain amount of time, and it can be extrapolated to make an assumption about how the stock's price is going to develop within the near future. If averages are going up, this is your opportunity to buy long positions, and if they go down, you can choose to short-sell the stock instead.
When looking for short-term investment options, one thing to keep in mind is that the stock market tends to gain steam from November to April, while the price average remains mostly static between May and October.
Important Short-Term Investment Tools
Short-term trading in the stock market means you buy and sell stocks that are actively traded, so you can conceivably get rid of them quickly if the price plummets. Investors use two tools to do this:sell-stops and buy-stops. Sell-stop orders are standing orders to sell your stock if the price reaches a certain point, while buy-stops are orders to buy stock once it reaches a specified price. These are useful risk-management tools as they allow you to automatically sell stock once it plummetsbefore the value goes too low(and your losses become too great).
A Question of Time – Hands-off or Hands-On?
If you're unhappy with the returns you get from government bonds and your savings account, you might well plan to start short-term investing. But in order to invest successfully with a short-term approach, you will need to be able toset some time aside to actively manage your portfolio. If you're investing long-term with a buy-and-hold strategy, you can probably afford to look at your investments every couple of months only. But in short-term investment strategies, youshould be able to react quickly to market changes.One extreme example of this is day trading, which is basically a full-time job in its own right.
But even if you're just trading week-to-week or month-to-month, you'll need to be hands-on with short-term investments. If keeping track of your short-term investments and putting in the necessary research and analysis work to stay ahead of other traders doesn't fit into your schedule, short-term trading might not be the perfect choice for you.
