One of the most important issues in investing is to determine the goal and the strategy that fits it. Many of those who enter the capital market, after buying stocks, are faced with the question, when should they sell their stocks? Therefore, this question can be answered by specifying the purpose of the investment and the strategy that fits the type of attitude and ability of the people. Due to the fact that different people have different types of attitudes, their trading strategies are different and it is not possible to consider a general version for all of them. One of the important factors in people’s strategy is the investment time horizon. Some are interested in short-term investments and profiting from market fluctuations, while others have a long-term vision and risk tolerance and prefer to achieve higher returns in the long term. In both cases, people must have sufficient knowledge and skills and make transactions by examining all aspects. In continuation withWe will learn more about the concept of investment and its types.
What is investment?
Investing means not taking advantage of existing financial resources in the hope of acquiring more valuable resources in the future. To put it more simply, investment means that a certain amount of capital is used in a sector that in the future, in addition to maintaining the principal, will bring significant profitability.
According to time, investments are divided into two types of long-term and short-term investments.
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What is long term investment?
Long-term investment assets include assets that are held for more than one year; Because the main yield of these assets is realized after a certain period of time. Usually, long-term investments are non-cash and their sale will take time. These investments are high risk but can potentially generate significant returns. The nature of long-term investing is such that it allows you to invest in aggressive markets.
Investors often consider non-cash assets as a long-term investment that usually increases in value slowly but predictably.
The most common type of long-term investment is investing in real estate, which has become a long-term investment because of the difficulties in selling them. In fact, long-term investments have very low liquidity.
One of the other important areas of long-term investment is the capital market, which historical data shows that investing in this market has been more profitable in the long term than other parallel markets.
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What is short-term investment?
There are different definitions of short-term investment, which differ in the duration of the investment. Some believe that the time frame of short-term investment is less than a month or two, and others consider this time frame to be less than a week.
In general, it can be said that short-term investment usually includes assets that are held for less than a year. Any asset, regardless of what it looks like, is a short-term investment. Short-term investment assets are less stable and experience more volatility over time. For example, you can get significant profit from dollar price changes by buying dollars and having enough information about its price fluctuations in a certain period of time.
One of the most important features of short-term investment is its high liquidity; That means you can convert your capital into cash in the shortest possible time.
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Short-term investment in the stock market
The stock market is one of the short-term investment methods that has high stress and excitement; Because prices change under the influence of daily market fluctuations, and in case of negligence, the investor will suffer a heavy financial loss. Therefore, short-term investment in the stock market is suitable for people who have a high risk-taking spirit
In this type of transactions, as much as there is a possibility of gaining huge profits, it may also result in heavy financial losses. . Therefore, investing in this market requires enough time, knowledge, and skill so that you can monitor the market for long hours and finally receive the right signal from market fluctuations and start trading.
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Who are short-term transactions in the stock market suitable for?
In general, investors who participate in short-term stock market transactions fall into two categories. The first category is those who do not have enough experience to be in the stock market and constantly buy and sell because of fear and greed , and in the end either suffer losses or earn a small amount of income in this way. The second category is those who entered this market with sufficient skills and knowledge and with technical knowledge and real-time monitoring of the market, they identify suitable opportunities and start trading. This group of people will earn significant profits in the short term.
The difference between long-term and short-term investment in the stock market
The most important difference between short-term and long-term investment is the time to reach the goal. Investors in short-term stock trading are those who trade faster due to internal excitement to achieve large profits in a shorter period of time. In fact, these people have a short-term vision to achieve their financial goals.
On the other hand, long-term stock exchange investors have a long-term vision to achieve their financial goals and believe that they should achieve their desired returns with patience and tolerance. Sometimes the investment of these people may take several years, but in the end, they will get a big profit.
In fact, short-term trading investors have a higher risk-taking spirit than long-term trading investors. If the investment of both groups is fully planned and informed, it will generate significant returns for them.
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Important points regarding short-term investment in the stock market
Daily monitoring of a certain number of stocks
In the stock market transactions, you should focus on a maximum of 10 shares per day. If the number of stocks you monitor on a daily basis exceeds this number, it will cause confusion and disrupt your decisions; Because after each transaction, you must write down and analyze the transaction information so that you can make the best decision to buy or sell.
Following the movement of big investors
Achieving success is a difficult task for investors who have just entered the stock market and have little experience. These people may make hasty decisions under the influence of market emotions that lead to financial losses. This is despite the fact that big investors are fully familiar with the market and have high experience. Therefore, novice investors can identify sensitive situations by following the movements of large investors and use them with a suitable strategy to gain more profit.
Prohibition of buying at the peak and selling at the price floor
In short-term stock market trading, it is recommended to avoid buying stocks at the peak and selling them at the bottom. Try to make your purchase at the right places and step by step. At the peaks, after profit recognition, sell your shares before the downtrend begins. Always try to have a suitable strategy for entry or exit and use it to enter or exit shares at appropriate points. Consider the maximum risk of your transactions to be 5%. Don’t neglect the confirming candles to identify the market trend.
Establishing a balance between the amount of capital and the level of risk taking
In short-term transactions, the investor must determine his risk according to the amount of the invested asset. If the amount of risk taking is greater than the invested asset, there is a possibility of losing the entire capital.
Update positions in daily trades
In day trading, the positions determined the previous day should not be used as a criterion for the next day’s trading decisions. You should determine your position based on the current value of market transactions. If you made a trade and it didn’t go according to your expectations, get out of that position quickly and don’t let the losses of previous trades prevent you from focusing on future trades.
Formation of diversified stock portfolio and risk management
Try to form a diversified stock portfolio so that if the stock of one industry falls, the damage caused by the growth of the stock price of other industries will be compensated. In fact, you will somehow control the risk of trading by diversifying your portfolio.
Recommendations for short-term stock market trading
- If you are interested in short-term trading in the stock market, you must be familiar with technical analysis . Although technical analysis alone is not enough to buy and sell stocks, it helps you to identify market trends to a great extent. Along with technical analysis, learning Excel software will also help you in making calculations. With the help of this software and considering your financial goal, you can calculate the exit price and exit the share at the right price without losing the opportunity.
- Always set a loss limit in your transactions and try to stick to this loss limit; Because it is possible to gain significant profits, it will also result in heavy losses. You can avoid heavy losses by determining a suitable strategy and loss limit.
- Don’t implement the recommendations of people around you and even those you trust without analysis, and try to analyze and then implement these recommendations only based on your strategy. Note that different people’s strategies are different and their recommendations may be derived from their personal strategies. For example, your strategy may be short-term, but those around you have a long-term vision.
- Do not trust the signals given in virtual spaces; Because many of these signals are just to advertise the shares of companies that have been bought by people and they intend to put the stock in the buying queue and increase its price. Of course, you can check these signals and trade if it is suitable for your strategy.
- Always keep part of your capital (about 30%) in cash in short-term transactions; Because this will increase your security margin.
- If you have bought a stock that has a Sharpie growth and you do not have enough fundamental information about it, try to sell part of your stock on the first negative day and sell the rest if the stock continues to fall.
- If you miss out on buying a profitable stock, don’t be disappointed; Because despite the short-term view of your investment, a large number of stocks are traded daily in the stock market, which can create profitable opportunities for you.
- Even though you intend to trade short-term in the stock market, do not be biased on a specific stock; Even if the biggest investors offer you those shares.
- Try to buy shares of companies whose base volume is between 500 thousand and one million; Because these shares are not so small that you will have trouble selling them, and they are not so big that their price will hardly grow.
In this article, we tried to define the types of investment methods based on the time horizon. We also mentioned some points related to short-term stock market transactions, which are necessary to enter the market and earn profit from it. Note that due to the inflationary conditions of the country, short-term transactions have a high risk, therefore, without sufficient knowledge and skills, you cannot achieve your desired financial goals through these transactions, and it may result in heavy financial losses for you. be