Is short-term trading less risky than long-term investing?

Many short-term traders are heavily dependent upon technical signals, which offer a valuable glimpse into changing trends. Should this not be seen as "listening to the market" instead of a high-risk investment based on opinion and ego?

On the flip side, long-term investors will, by definition, take a long-term view which may not be prevalent in the market at the time of purchase. They often believe that the market has got it wrong in the short term, and the long-term benefits support an investment. Could this strategy really be classed as listening to the market?

 

As a day trader, you have literally just a few hours to buy and sell, crystallise your profits and take any losses on the chin. The fact that short-term traders don't hold positions overnight does, to a certain extent, protect them from many unforeseen events. However, this is not a complete guarantee because issues could emerge within or outwith the trading day.

Those who invest with a long-term timescale in mind are not only at the beck and call of changing circumstances for the company in which they invest but also national and international issues. Similar to why longer-term interest rates tend to be much higher than short-term arrangements, there is a risk the longer you hold an investment.

 

Those who invest in any type of asset need an ego, a belief in their ability. There's nothing wrong with this. The difference is that with execution-only short-term traders, dealing on technical signals and implementing stop-loss limits, there is little space for an ego. So if a stop-loss limit is broken, the shares are sold, and we move on to the next one.

When you are taking a longer-term outlook on the prospects for a company, there is much more time to let your ego take over. While it may be correct to remain focused on the long-term, ignoring short-term blips and volatility, sometimes the situation can change. 

We have all been there. While maintaining our positive long-term outlook, the share price continues to fall. Then comes that faithful point, "there is no point selling it", followed by further falls. Rather than using the strict stop-loss approach taken by short-term execution-only traders, long-term investors can often experience death by a thousand cuts.

 

When investigating the best trading facilities for execution-only investors, you will encounter the term's low latency execution and low touch execution. What do they mean?
 

Latency is the measure of time between an instruction being sent, received and acted upon. Obviously, in the world of fast-moving share prices, every second does count. Consequently, here at Global Investment Strategy Limited, we constantly invest in the latest technology. This ensures we can provide the best low latency execution-only service, allowing traders to maximise their returns.
 

Before the emergence of the Internet and online trading, instructions tended to be passed to your broker by phone, then to a market maker, onto the floor and finally executed. As quick as these individuals were, there are time delays the more people involved. Low touch execution simply describes the lack of third parties involved when passing a trading instruction. The fewer hands "touching” your instructions, the quicker they should be carried out.

 

Just because an investor has a long-term opinion on a stock does not mean they are correct, or their returns will be greater. The fact that short-term traders tend to use stop-loss limits is often overlooked, a safety net which avoids significant losses while allowing traders to run their winners. So, execution-only traders are very far from reckless, an image which many long-term traders tend to hold. As long-term traders leave more to their minds and long-term opinions, which is taking the greater risk?