Stock trading: Long-Term vs Short-Term Traders

As we know already, stock traders can be of two types, short-term trader or long-term investor. If you’re more of a medium to long term investor like Warren Buffett who is not looking for short-term profit, instead want to do stock trading 여우알바 looking at the long-term benefit – then you have to look more at things like the price-to-earnings ratio. To calculate the price-to-earnings ratio or P/E ratio, you have to divide the share price (current) by the earnings-per-share. And if you take the p/e ratio divided by the earnings growth rate, for a specific period, this is known as the PEG ratio.

What is the PEG ratio?

So, PEG ratio is what tells you whether a share is overvalued or is it undervalued, or is it expensive or is it cheap. And this is only important if you are a long-term investor. If you’re a short-term trader it doesn’t matter if you buy an expensive stock; because in the short term, an expensive stock can become even expensive – high can become higher. In fact, if you’re a short-term trader, you should not buy cheap stocks; because cheap can get cheaper due to the downward momentum. But a long-term investor wants to purchase shares as undervalued as one can. So, things work in a really different way depending on whether you are a short-term trader or you’re a long-term investor.

Long-term vs short term

As a long-term investor, you’ll also be concerned with things like current ratio and depth to equity ratio over here that tells you the company’s leverage on that position. You also look at things like gross margins return on equity and even insider transactions. But these are not really important for short-term traders. Now, if you’re a short-term trader, it is crucial to look at some numbers like how many shares are traded in a single day of a particular company. For example, if you look at Facebook and you see 21 million shares are traded, that’s a good sign. Because you want sufficient liquidity so you can get in and out of stock with the minimum slippage. If we talk about Facebook, it has 2.28 billion shares outstanding as per NASDAQ, and it’s market cap is 556 billion USD. All this information you can get from most websites if you search on google.

 

How do you profit as a long-term trader?

Now, the most important question is how do you make money from trading stocks and how do you calculate your profits? Basically, you have two ways to profit from the stock market, the first way is by going long and the second is by going short. So, let’s start with going long. Going long simply means buying at a low price and selling at a higher price. In short, you buy low and sell high or buy high and sell higher. So obviously you can only do this if the share price goes up. Now, you have to look for a stock whose share price is likely to go up. Here we are bullish on the price of the stock. And bullish means you are optimistic prices will move up.