Short term trading vs. long term trading

N

neutrino

Is short term trading more profitable than long term trading?
(with short term and long term I mean the holding period)

I know this has been discussed before, I've read all posts regarding this issue but I want to put it on a more scientific base.

First I have to make some assumptions. "More profitable" would mean that other things being equal the trader should be able to make higher returns with the same portfolio volatility (the same risks) or the same returns with less volatility (smaller risks). I will ignore commissions, slippage and liquidity problems.

I will assume that the trader has the same level of skills in all timeframes (he is as good to recognize and act on a pattern on a daily chart as on a 5-min chart).

What if we backtest a strategy in different time frames (day trade, swing trade, position) and adjust the position size so that we get the same volatility (I am not sure if this is a valid way of measuring the portfolio risk), what results are we going to get ?

Are there other factors here that I am missing?

I have the feeling that shorter term trading would yield higher returns given the same risks. But I find it too complex to prove mathematically.
 
Percentages are used to define reward vs risk. But when the rubber meets the road, why would you define ultimate profitability in anything other than absolute dollar returns?

Case in point: when I was in sixth grade I made an 800% return on equity selling Garbage Pail Kids.

Is that supposed to be more impressive than making a 40% return on, say, $300 million?
 
Quote from neutrino:

Is short term trading more profitable than long term trading?
(with short term and long term I mean the holding period)

I will assume that the trader has the same level of skills in all timeframes (he is as good to recognize and act on a pattern on a daily chart as on a 5-min chart).
More...

I have my doubts about this. The trader might very well be able to recognize a pattern on any chart/timeframe. Acting on it might be a different story. I suppose that it can depend upon the nature of the trader. (Old scorpion riding the frog across the river story comes to mind). "you told me that you wouldn't sting me, says the frog to the scorpion -- sorry bud, it's just my nature replies the scorpion" Best I can remember, they then both drowned.
 
put together all the short term traders with 10 year track records of profitability or longer, then compare their winnings against a tally of all long term traders with 10 year track records or longer.

Not sure how it would stack up, but I'm guessing you would see something like $20-$30 billion on one side vs maybe a quarter trillion on the other.
 
Yes, you are missing labor.

Michael B.


Quote from neutrino:

Is short term trading more profitable than long term trading?
(with short term and long term I mean the holding period)

I know this has been discussed before, I've read all posts regarding this issue but I want to put it on a more scientific base.

First I have to make some assumptions. "More profitable" would mean that other things being equal the trader should be able to make higher returns with the same portfolio volatility (the same risks) or the same returns with less volatility (smaller risks). I will ignore commissions, slippage and liquidity problems.

I will assume that the trader has the same level of skills in all timeframes (he is as good to recognize and act on a pattern on a daily chart as on a 5-min chart).

What if we backtest a strategy in different time frames (day trade, swing trade, position) and adjust the position size so that we get the same volatility (I am not sure if this is a valid way of measuring the portfolio risk), what results are we going to get ?

Are there other factors here that I am missing?

I have the feeling that shorter term trading would yield higher returns given the same risks. But I find it too complex to prove mathematically.
More...
 
Quote from ElectricSavant:

Yes, you are missing labor.

Michael B.
More...

Yes, you are right. If your holding period is shorter you must pay much more attention and devote much more time to trading.

But let's say you do that, let's assume that you pay as much attention as is required so as to not miss an opportunity or a signal. What would be the outcome if you take the same level of risk?
 
Quote from neutrino:

Is short term trading more profitable than long term trading?
(with short term and long term I mean the holding period)

I know this has been discussed before, I've read all posts regarding this issue but I want to put it on a more scientific base.

First I have to make some assumptions. "More profitable" would mean that other things being equal the trader should be able to make higher returns with the same portfolio volatility (the same risks) or the same returns with less volatility (smaller risks). I will ignore commissions, slippage and liquidity problems.

I will assume that the trader has the same level of skills in all timeframes (he is as good to recognize and act on a pattern on a daily chart as on a 5-min chart).

What if we backtest a strategy in different time frames (day trade, swing trade, position) and adjust the position size so that we get the same volatility (I am not sure if this is a valid way of measuring the portfolio risk), what results are we going to get ?

Are there other factors here that I am missing?

I have the feeling that shorter term trading would yield higher returns given the same risks. But I find it too complex to prove mathematically.
More...

I have found in my experience over 12 years that swing trading in the 1-10 day time frame and position trading with a 20 trading day holding period in mind is much more profitable then daytrading back and forth all day and knocking your brains outs for small profits. Many will argue but that is my opinion.

The meat of any good swing trade is the first 3 days anyhow. It is in that time period where you will capture 75% of the profits. Then you will get pullbacks and continuation patterns that set up if the stock is going higher in the long run. Visa Versa for shorts.

I want to say further that swing trading aka holding over night risk gets such a bad rap. I made most of my money holding overnights. In fact holding many nights in a row. Not taking over night risk sounds appealing but its so much more a function of the fact that most people who trade have been pigeonholed into having to daytrade because of the 25k daytrading rule. These people are beholden to the prop shops that provide them leverage who will in the majority of cases not let them hold overnight positions. They wont let them hold overnights because these firms are interested in the commissions which they will get the same way if these people just trade intraday. Why would it be in their (the prop shop) best interests then to let them take on overnight risk. I have watched over the years as the word overnight is treated like leprosy and its amusing at best. I know many once again will defend their reason for only daytrading but those who want these people's opinions your best to first ask them if they are even trading with more then a 5-10k capital base of their own equity (not including leverage provided by a prop shop). The bigger players on this site I am sure will agree that they don't tick - f-ck the markets all day. Its just not worth the mental strain regardless of its sex appeal with the main stream but undercapitalized traders who chant the mantra.
Good Luck.
 
The outcome would REQUIRE a higher yield to compensate for like labor, no matter what length of trade it is. Assuming short term would require more time.

Also one must consider a simple question as to the effectiveness of their trading. Evaluate this simple study:

Is Close-Open>my numerous intraday trades? Otherwise, did I pull more than the range gave? My statement is this. If you do not achieve more than range consistently, why put in the labor? (commission cost MUST be figured into the bottom line when penciling this in, if we go deeper, but let's keep it general)

Michael B.

P.S. I believe rather than to get in to personal styles and what works for a trader, the thread will be best served by posting generalities. But if you want to go deeper, I can share my OPINIONS.


Quote from neutrino:

Yes, you are right. If your holding period is shorter you must pay much more attention and devote much more time to trading.

But let's say you do that, let's assume that you pay as much attention as is required so as to not miss an opportunity or a signal. What would be the outcome if you take the same level of risk?
More...
 
If you gave two traders $10,000, and one was a daytrader and the other was a swing trader, and they were both equal in trading skill for their perspective styles.

Then, you set a time limit of say one month to a year, I believe the daytrader would make much more money than the swing trader.

IMHO...:D
 
You must log in or register to reply here.
Back
Top