Well, to be clear, in investing, the answer to that question really depends on the individual’s particular situation. For example, the question is somewhat less crucial for long-term investors, who can take long positions with little to no time horizon because they know that with a small enough exit probability, their return is likely to be consistent with the broader market. This makes “the long term” the proper question to ask.
But for short-term traders who want to take a shot at the market right now, the “the short term” question is irrelevant because the price of the stock will go nowhere in three months.
The important thing to consider is what can happen in the next 12-36 months that may or may not be conducive to their long-term plans. Let’s assume for a moment that they will make money and sell their stock for a profit of 5%. In such a case, the question of time horizon becomes relevant, particularly when they make the sale. So what is the best time that the stock should be closed?
For shorter-term traders, the answer will be that long-term investors should always close their positions for the first two to three weeks after they open. This avoids short-term trading fees. But for long-term investors, the ideal time to close is the second week after the buy offer expires. For instance, investors should close a stock position if, two or three weeks after the close, a reasonable probability exists that the price could fall to 50 cents or 25 cents.
For long-term investors, the optimal sell-off happens by five months after the buy offer, or whenever the price reaches a level where the possibility of redemption of the stock is negligible. Because long-term investors have no chance of getting redemption for their stock in the short term, they need to sell before the stock’s price reaches that point, and they then have a reasonable chance of getting another purchase. Therefore the optimal sell-off occurs, as an investor, between five and six months at most.
To be clear, in trading there are often other considerations that impact the timing of a sell-off (including timing and volume). But since the “the short term” question remains an arbitrary criterion, many short-term traders rely on the short term. Therefore, let’s take a closer look at what the “short term” actually means.
What does “the short term” mean for a stock?
When analyzing a stock’s potential future, it will
swing trading algorithm bot, swing trading strategy guide ally sheedy young, swing trading for dummies cheat sheet, swing trading stock definition, swing trading strategies investopedia