A Short Term Trader - You Should Be One!

Short term investment in stocks can be extremely profitable. It can be more profitable, over the years, than long term investing. This is because the rate of return on long term stock investment is typically not linear. Market volatility, market trends, and market reversal all affect stock prices, even of the most stable of stocks.

Introduction
In a previous article - 'A Long Term Trader - Do You Want To Be One', several reasons were discussed why I believe that a short term trader is a better choice that a long term trader. For this article, a short investor/trader is one who holds his/her position for less than a day. Therefore, in this discussion scalpers are included in the group generally referred to as day traders.

Once you make the decision to be a stock market trader or investor it is important for you to choose what type of trader you are going to be. Assuming you have made the decision to be a short term trader you must pursue a line of study that will make you knowledgeable and skillful in the area of trading you have chosen. This line of reasoning is applicable to all forms of trading.

According to Investopedia.com, a scalper is a person trading in the equities or options and futures market who holds a position for a very short period of time in an attempt to profit from the bid-ask spread. The key here is to trade large amounts of equities frequently and make just a few pennies per trade.

Traders are Gamblers?
Generally, in some quarters stock market investing is looked at as gambling especially if you are a day trader or trading options. There are few reasons why this opinion is perpetuated. Many new and unskilled people get into the market hoping to make it big without the proper preparation and lose a lot of money. Also, it is said that the insiders at Wall Street would like everyone else to be long term traders and left their positions at the mercy of Wall Street. All the major investment bankers refuse to talk to 60 Minutes about high frequency trading - scalping.

Become a Scapler
The reasons why you should not be a long term trader are the exact reasons why you should be a scalper - see the article mentioned above. One of the most important reasons to be a scalper is total control of your money. Long term traders will never be able to survive a crash. This brings me to the point of showing that the notion that day trading is more risky than other forms of trading is a major misrepresentation.

Here are some points to solve the issue of high risk that is frequently associated with short term/day trading. Firstly, there are different types of short term trading. I suggest that you become a skillful scalper. Scalpers money are in the market or exposed for very, very short term periods - from a few seconds to a few minutes. Which style of trading is less risky? One that is in the market all the time; one that is in the market for the day; or one that is in the market for a few minutes. Obviously, the answer is the scalper because of the short exposure.

Secondly, I am confident that a skillful scalper did not lose 33% to 66% of his investment during the subprime mortgage market melt down. Some long term traders did and they were about to retire - ouch!

Thirdly, if you studied the 'flash crash' of 2010 it would be evident that the skilled scalper is the only trader that would have benefited tremendously during that short time of nervousness in the market - stay tuned for how to benefit from a market crash. Traditional day traders may have suffered heavy loses during that time if they were on the wrong side of the market when it made that unexpected plunge downwards.

Finally, the current stock market environment calls for one to be a scalper. Many people who are in the market seemed to think that a crash of some sort is about to materialize. To survive any upcoming market volatility become a skilled scalper.