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Interview: Short-Term Trading Is a Zero-Sum Game, Long-Term Investing Is Not

Last Updated on 10 February, 2024 by Abrahamtolle

This week I was interviewed about my trading philosophy. In the interview, I mentioned how difficult it is to make money daytrading or swingtrading for short-term profits. This is mainly a zero-sum game, I will even say it has negative expectancy due to commissions and slippage. Opposite, long-term investing has a positive expected return, given a diversified portfolio, as long as you have time on your side. Short-term trading has many losers and few winners, while long-term investing has many winners and few losers. Which game do you want to play?

We like to read about the short-term traders making millions, but the statistics lie. I’m pretty sure the median short-term trader loses money, while the median long-term trader has a positive return. Averages are deceiving. As Nassim Taleb writes:

Never cross a river that is on average four feet deep.

Nassim Taleb likes to call this scalable vs. non-scalable profession, something I wrote about several months ago.

However, trading is of course doable, we at RationalThinking have been moderately successful for two decades. Please check out The Robust Trader for a detailed article about what you need to succeed in trading.

FAQ:

– Why is short-term trading often considered a challenging endeavor for profit?

Short-term trading can be challenging because it often involves a zero-sum game with negative expectancy due to factors like commissions and slippage.

– Why can stories of short-term traders making millions be misleading?

Despite success stories, average short-term traders face challenges not reflected in such stories, making them misleading.

– What role does time play in the profitability of long-term investing?

Time is crucial for long-term investing as it allows investments to compound positively over an extended period, increasing expected returns.

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