Both short-term trading and long-term trading can be effective trading strategies, however, long-term trading has several significant advantages. These include the effect of compounding, the opportunity to earn from dividends, reduction of the impact of price fluctuations, the ability to make corrections in a more timely manner, less time spent monitoring stocks.
The most important part of how to make money using the no-stop, hedged, Forex trading strategy will now be covered. In the preceding articles in this series, we reviewed trading without stops, not being concerned about which way the price moves and places to cash in on profitable transactions. We are now going to show how you would make money buying and selling simultaneously using the grid strategy.
The no-stop hedged currency trading grid system uses the rule that one should be able to close a transaction at a gain no matter which way the market moves. The only way this is logically possible is that one would have a buy and a sell transaction active simultaneously. Most traders will say that doing this is not recommended but let’s look at this in more detail.
1. Compounding
Time can be an investor’s best friend because it gives compounding time to work its magic. Compounding is the mathematical process where interest on your money in turn earns interest and is added to your principal.
2. Dividends
Holding a stock to take advantage of payouts from dividends is another way to increase the value of an investment. Some companies offer the ability to reinvest dividends with additional share purchases thereby increasing the overall value of your investment. Additionally, dividends are more a reflection of a company's overall business strategy and success than volatile price fluctuations based on market emotions.
3. Reduction Of The Impact Of Price Fluctuations
In the long-term investment, the person is less affected by short-term volatility. The market tends to address all factors that keep changing in the short term. So a person involved in a long-term investment or trading will not be affected as much by short-term instability due to factors such as liquidity, fancy of a particular sector or stock which may make the price of a stock over or undervalued. In the long term, good stocks which may have been affected due to some other factors (in the short term) will give better than average returns.
Long-term investors, particularly those who invest in a diversified portfolio, can ride out down markets without dramatically affecting his or her ability to reach their goals.
4. Making Corrections
It is highly likely that you could achieve a constant return over a long period. The reality is that there will be times when your investments earn less and other times when you make a lot of money in the short term. There may also be times when you lose money in the short term but as you are in quality stocks and have the long perspective of investment you will earn good returns over a period of time.
There are always times when some stocks do not perform and it is the wise choice to pull out of an investment. With a long-term perspective based on quality stocks, it is easier to make decisions to change in a more timely manner without the urgency that accompanies short-term and day trading strategies chasing volatile changes.
Investors that begin early and stay in the market have a much better chance of riding out the bad times and capitalizing on the periods when the market is rising by taking a longer-term view using long-term trading strategies.
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