Long-term investing or actively trading?

by Said Goku

For impatient people that just started with FIRE like us, investing in ETFs doesn’t seem to be going fast enough at the very beginning. This is how we came up with the brilliant idea tostart with active trading; What’s the worst that can happen …

Long-term investing

When you invest for a longer period of time, you believe in the company you are buying the stock from. For example, you buy TESLA because you expect it to increase in price for a longer period of time and this will yield a nice return. In addition to investing in shares, you can of course also invest in bonds, real estate or index funds. The latter in particular is known and popular within the FIRE community. We recently wrote an article about this. Investing is popular because it often is “set and forget”; You don’t have to look at the price every day, but focus on the horizon. That your investment can go through a bearish period in between is no problem, because you still expect a reasonably stable return over the entire period. This way of investing is often based on an average return of 4-10% annually.

Active trading

Trading is a word close to selling. Like a trader/ seller in a physical market, you do not intend to keep your product for long. You buy it for an attractive price and try to sell it as quickly as possible for the best possible return. A popular way of trading with beginners is day trading. With a day trade you open a trade with a product in which you expect the price to rise within a few minutes or days and get out quickly; hopefully with more cash than you got in. For example, a trader looks for moments to get in and out that can earn him 4-10% for a single trade. It is clear that the risk with trading is higher than when you’re long term investing.

A leap of faith

With modest assets and modest returns from an ETF, my impatient brain said, “Mr. FIRE Ninja, just start with active trading. “Because I have not done this before, it seemed at least sensible to have a parachute before I dove in the deep end. So I looked online for some information that could help me with this. I googled ‘trading’ and saw there were 11, 6 million search results .. Even with better search filters, it turns out that there are more sponsored blogs, vlogs, and quick courses on trading than we have roof bikes in the Netherlands, I had more success searching for the basics of technical analysis because we want to apply this to not just rely on Twitter news or our hunches.

Technical analysis is looking at current stock prices from historical graphs in combination with historical information from the stock market to make statements about future stock market prices

Wikipedia

Because we trust the Coin Bureau as a reliable source and he is an expert within crypto circles, despite the clickbaity layout of his videos, we watched the following one before we started.

Armed with the basic knowledge we just acquired, our common sense (buy low, sell high), and naive enthusiasm, we got to work. As some readers might know, I have full confidence in Vechain at the moment and most of my assets are in it. My strategy was simple yet brilliant: I sell a small portion of my stock when it is high and use that cash to buy back more Vechain when the price falls a little. This is possible with crypto because fluctuations of 5-10% up or down are simply seen as “just another Tuesday”. I looked at the RSI (Relative Strength Index) and the MACD and put 10% of my Vechain on sales at 18 cents, the price that I believe would be a local high before the price dropped temporarily. The sell order was successful, so now on to phase 2. I put a buy order at 15.5 cents and only had to wait for my expected drop in price. I put my phone away and told myself not to keep an eye on the price. A few hours later I took my first look and it’s at 19 cents. The next afternoon the price was at 20 cents, a little later at 21 cents and later again at 22 cents. Ouch.

attempt 2. We now have cash burning a hole in our pocket which, after a short technical analysis, we decide to convert into Matic. This turned out to be a good move because it shot up like a rocket (30% in 2 days). We thought the run of Matic was over for the short term and switched to Zilliqa. This is a coin we previously held and liked and we made the switch after reading a very positive announcement about NFT’s with famous soccer players. Despite the NFT announcement, Zilliqa dropped by 10% after our switch. And even with the switching not working out, we were still in the green. However, in the corner of our eye, we see Matic rise to an ATH and we regret our switch a bit because of FOMO (Fear Of Missing Out). Like a rabbit we hopped back to Matic. As if someone is playing with yo-yo with my coin picks, this one also drops by 10% …. We quickly take stock and see that despite everything we can buy a little more Vechain than we initially sold in Attempt 1. We do this immediately and breathe a sigh of relief.

Learning from other people’s mistakes

If you’re like me, impatient despite a good ETF investment, you want faster and higher profits. With far too little knowledge and a little too much confidence, you may start trading. This mindset is called the casino mindset. Do you know why a casino lets you gamble with chips and not real money? It’s because playing with chips feels like playing with Monopoly money. This makes you take more risks and play with larger amounts than you actually intended. Trading often feels the same way; you don’t always see your winnings and losses as real money.

The statistics and stories don’t lie; Time in the market beats timing the market. The extra time and stress that trading entails do not pay off in better returns but exactly the opposite: 3 percent of private traders earn money, of which less than 1 percent earn more than the minimum wage. If that’s not enough to sit on your hands when they’re itchy to trade!

About day traders: “With or without an (online) course it is just gambling. You could just as well go to a casino.”

Association of Securities Owners

In all fairness, this will probably not be the last time we will be experimenting with this, and we would like to take you along in our successes and blunders. We are curious about your own experiences with wrongly timed trades! Let us know by leaving a comment!

You may also like

Leave a Comment

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More