Thursday, February 22, 2007

Words from the wise

This is from Joshing, a skilled technician in my opinion. He does short term trades, usually a few days to minutes that kind, and is dead accurate in the reading of charts. He does not believe in complex indicators, just simple price actions and volume because he once said that indicators are lagging, so why believe in them?

I like his style a lot.

Here's why I chose trading over long-term investing for stocks -

If you could read the market, and could see when it will go up and when it will go down, would you want to take that risk to buy the stock and hold so that you will be able to capture all the potential upmoves?

By holding, you are already taking in the risk of upmoves and downmoves that are unnecessary because you can already see when it will come.

Holding for long-term means your risk and reward is better than those in the short-term? Whoever told you that? Have you thought about it to prove that claim or do you accept it because it sounds logical?

If you hold for long-term, you are accepting risk that could mean future profit warnings, company bankruptcies etc etc for as long as you hold. If I trade on short term, I am only accepting these risk for a limited short time span. Whose risk is higher? Long term or short term?

Risk is not highly correlated to reward in this situation. Your reward will only come when the price rise. Does that mean, the longer you hold, the more your reward, because you take on more risk? We all know from market experience that this is not true.

If that were the case, then the longest listing company in history should have the highest share price.

Conversely, the reward comes to the player who is able to detect and capture the upmove which can be done on short term and not necessarily long term.

You can find his postings in CNA forum: market talk under the thread "Joshing's holdings". Interesting fellow.