Buy and Hold Vs Swing Trading

Commercials on TV always promote buy and hold investing as the best way to make money in the stock market.

You will never find an financial advisor that doesn’t recommend it.

This is especially true of baby boomers although younger investors are more open to a new way of managing their money.

How Has “Buy and Hold” Worked over the last 2 decades?

If you bought the S&P 500 20 years ago you would have suffered through two of the worst bear markets in history!

You would have suffered draw downs of 50%! And this is the best way to invest?

Using a basic swing trading strategy that went long only (ignoring the shorting potential) you could not only have avoided those massive draw downs and just capturing the bulk of the advances you would be up several hundred percent!

This is the advantage of swing trading, you don’t have to suffer the draw downs and the associated stress.

Swing Trading Advantages

Buy and Hold Performance in the 1990’s

Lets assume you started investing in 1990, you would have probably done very well for 10 years. However, when the “dot-com” bubble finally burst in 2002 you would have lost all your gains and much more.

The NASDAQ went down by 80%!

Just went you thought is was safe for buy and hold investing the 2007 financial crises hit and the markets got slammed by another 50% loss.

Its hard to see how anyone could advocate buy and hold investing after these losses but Wall Street still says it’s the best strategy over the “long haul”.

Financial advisors will tell you that you are buying stocks based on “fundamentals” and they trade based on valuations. But are we too believe a companies value dropped in half in the space of a year”

I think you know the answer to that.

Stock prices are mostly influenced by traders emotions and they swing from greed to fear. During the greed phase all stocks get bid up. Its as simple as that.

Why Buy and Hold Doesnt Work

Buy and Hold Performance in the 1970’s and 80’s

If you are old enough to have been investing the the 70’s or 80’s you would have been suffering some of the worst conditions possible for buy and hold.

The theory was you bought “undervalued” companies and held them while the market realized that and bid them up. While sometimes it worked, many times the undervalued companies became even more undervalued.

If however you took an objective and technical view of the markets and individual stocks you would not have suffer these draw downs.

By swing trading the ups and downs of the market you can not only take avoid the downturns you can actually profit from them!

Swing Trading is the Answer

Keeping an open mind and being flexible is by far the best way to profits in the stock market. Since no one knows what will happen the only way is to let the market tell you.

Using a purely technical method that is devoid of emotion can be your edge.

Looking at a chart of just about any market or individual stock you can see long periods of time where the market is going up or down. As prices continue in one direction, more and more people jump in believing the prices only go in one direction.

This usually results in losses when the market inevitably turns. Normally markets go much farther than is believed possible because of traders emotions of fear and greed.

Normally what happens is most people buy the top and finally sell at the bottom taking large losses.

The Bottom Line

By trading with an edge and without emotion you can easily beat the market. Do not try and predict where the market will go, it will tel you and then just follow it.

By using some simple strategies or following a reputable trading service you will come out far better than a buy and hold strategy only.

Robert Walsh

I am an avid swing trader who has been trading stocks and futures for almost 10 years. I enjoy many sports like, golf, tennis and have been running mud races now like the Tough Mudder. If you have any questions about trading or the stock picking services I reviewed, feel free to contact me.

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