The Importance of Long Term Trading

Long term trading is a very effective and reliable strategy to adopt if you desire to create wealth via the capital market. Take a look at the investors that are living testimonies of the glowing legacies of the stock’s market wealth; without fear of being contradicted are long term traders. Long term trading is a pattern of trading that allows an investor to invest in shares over a long period; during this period a lot of factors combine to enlarge the size of your investment or portfolio. In the course of this article, I will discuss some of these factors. But first; let’s look at WHY long term trading is highly recommended if you want create lasting wealth from the stock market.

INFLATION: long term trading allows you to beat inflationary trends in the economy. Inflation diminishes the size of your savings in a bank over a period of time. Let’s say you banked 10,000 in a bank and the bank gives you 5% interest at the end of the year; your savings would amount to 10,500. Inflation trends dangles between 8% – 12% within the year, imagine what that range of inflation would do to your savings over a period of 5 years. But if your invest that same money in a strong stock adopting long term trading, you are guaranteed returns ranging from 50% - 100% in a year from the forces of capital appreciation, dividends and bonus scrip over the period in discussion (5 years)

COMPOUND INTEREST: Compound interest is one of the most awesome wonders of investing. It is the process where the interest your invested capital earns in turn also begins to earn interest which is added to your capital and the process continues as long as it is allowed to continue. Compound interest only functions effectively around the atmosphere of long term trading. The power of compound interest is hidden in TIME.

DIVIDENDS AND BONUS SCRIP: As the months and years roll by; every unit of share you own in your portfolio is enlarged by the combined forces of dividends and bonus shares. Each unit of shares in your portfolio over time earns interest called earnings per share from the company you invested in. If the company’s business performs well; additional free shares will be added to your portfolio. Long term trading allows you to enjoy the fruits dividends and bonus issues.

RISK REDUCTION: Long term trading reduces all risk associated with stock trading. Every seasoned stock trader knows you can’t always beat the market. There are forces every stock trader has to contend with. Forces like price fluctuations, economic instability, bad news that cause stocks or investors to sometime overreact, liquidity, and other related forces that space will not allow me to include. All of theses forces can be corrected with long term trading unlike short term trading; long term trading gives you a balance. A balance that gives you peace of mind.