Question:
I am new to trading. I am still getting confused about short and long trading. I think to trade short is three months or six months and long is one year. Am I right or wrong?
Rachel from Longville
Answer:
Rachel, I should assume you know the technical definitions of “short” and “long,” but I won’t. So, back to the basics for everyone, at least for the moment.
Trading short means that a trader is betting a market will go down, so a trader “borrows” stock and sells it. Trading long means a trader is betting a market will go up, so a trader a buys into the market. Theoretically, when a trader is long a market, the upside is infinite and the downside is limited to a market going to zero. When a trader shorts a market, the upside is limited to a market going to zero and the downside is infinite. This, along with leverage (trading on margin), makes shorting a market more risky than going long a market.
As to short and long in terms of trading timeframe, the definitions become somewhat less technical and a bit more blurry. Long could mean you buy a market and forget about it until the day you need the money (investor), say for retirement in twenty years. Short could mean intraday (day trader), meaning you are in and out of a market within a day, within hours, or within minutes. In between those extremes, one can find swing traders, guerilla traders, and position traders. The latter trader is a commodity trader (futures) who holds a position for many months, or longer in some cases. Swing traders and guerilla traders use different tactics to make a profit, but generally hold a market longer than a day, but less than three months.
Rachel, what I pointed out above comes directly from Trading 101. I hope that when you say you are new to trading, you mean you are in the learning phase and not actually risking any money. If this is the case, keep on learning, keep on asking questions, keep on keeping on. If it is not, make it so. Until you naturally understand the difference between long and short, both technically and timeframe wise, you should not be risking any of your hard-earned money.
Trade in the day; invest in your life …
