Simply Short Term Trading – Don't Sleep with a Position
Short term trading is referred to as day trading or swing trading, whichever you prefer to call it but, its generally the same no matter how you look at it and no matter how you shake the dice.
Let’s take a look at the difference – day trading is when you enter and exit positions, normally more than one and possibly more than one at the same time, during any given market session but, you exit the position, no matter what, win or lose, before the closing bell rings to end the trading day. Swing trading on the other hand, will take place during the same trading day as long as you exit the position or positions before the closing bell rings for that trading session. Swing traders normally swing trade one or just a few positions at the same time, during any one market trading session. Some swing traders will hold a position for more than one day but, just a few days at the most. Investors are the ones with the most risk because they hold positions generally for months or years, for that matter.
The key to the game whether you are day trading or swing trading is, at 4:00pm Eastern Time when the U.S. Markets close, you are not an investor of any stock, futures contract or forex contract. Things happen and these same things can happen over night when you are unable to exit a position or while you are sleeping and you have no idea what is going on. Simply put, these unforeseen incidents can wreak havoc on your trading account and you can end up losing money and sometimes, a lot of it. Professional short term traders, day traders or swing traders realize this and this is a key reason they choose not to sleep with a position.
If you ask day traders or swing traders if they are holding any 'long term positions', many will respond yes however; if you dig deeper, most are only doing so because they failed to take their stop loss on a position or decided to hold a position overnight on thoughts that a position would do this or that, the following morning and found that they were wrong on expectations. Its a common occurrence for day traders or swing traders to become investors and, not by choice but because they failed to follow their own trading strategy of 'not sleeping with a position'. Again, most of these same investors not by choice will end up cashing out of their position with substantial losses or even worse, wash out on a position of a stock for example, that merely, bellies up leaving the investor with zero. The emotional dilemma from holding a position overnight to only find that the position is worth a whole lot less tomorrow and the next day and the next, is astounding. This emotional turmoil is likely to take its toll on the trader, creating continuous second guessing which only costs the trader that much more in the short term.
So, simply put, do not take the gamble and sleep with a position unless you decided to become an investor in a certain position that you have researched, thoroughly.