Today’s article is going to be extremely educational; I’m going over the biggest differences between long-term investing, short squeeze plays, and day trading.
In this article you’re going to discover what makes each one more susceptible than the other to market manipulation and overall risk.
When you’re looking to build wealth in the market, it is important to identify the major differences between the three.
Be sure to bookmark this page so you can come back to it in the future for a mental refresh.
Let’s get started!
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Let’s dive right into it!
#1. Long-Term investing
Long-term investing is the #1 traditional way to build wealth over a long period of time.
Investors looking to build wealth this way tend to invest in high dividend yielding stocks such as the S&P 500.
Here, an investor’s portfolio compounds over time as dividends are rolled over or reinvested back into the asset – further purchasing more stock on its own.
During the years of retirement, investors may decide to stop reinvesting the dividend and accept the dividend as cash instead.
This is how a dividend stock portfolio may yield investors with big passive income in the form of cashflow many years later.
Many of these stocks are not heavy victims to market manipulation due to the security and minimalistic risk there is to invest in these funds.
#2. Short Squeeze plays
Short squeeze plays have a high risk/high reward ratio that has attracted many new investors into the market.
When a stock is being heavily shorted, the short interest percentage of the stocks float tends to rise.
This means that with enough buying pressure, investors may increase the probability of squeezing short sellers from their positions.
We saw this occur when AMC ran from $2 per share to $72 per share and when GameStop skyrocketed into the hundred-dollar levels.
While both these two stocks are still heavily shorted, these are just two examples of short squeeze plays where investors could have taken advantage of an opportunity to make big bucks.
Short squeeze plays are more susceptible to market manipulation since market makers tend to have a lot of control of retail investor’s orders.
They may drive share prices down by overleveraging their already bias positions, which means a lot of momentum is required for a short squeeze play to be successful.
Short squeeze plays are a form of swing trades that may last weeks to months of holding a stock before trading it for profit.
This type of investment strategy may be viewed as mid-term investing to cash in big on a rather unique opportunity.
#3. Day Trading
Day trading uses leverage as a multiplier to trade stocks in a short-term timeframe.
What makes this investment strategy attractive to most investors are the possibilities to earn massive gains in such a short period of time.
Traders are earning money whether the market is up or down through ‘put and call options contracts’.
Unlike long-term investing or short squeeze plays that have a buy and hold approach, day trading is a skill that requires focus, discipline, and a deep understanding about the psychology of trading.
Day traders can earn hundreds to thousands and even tens of thousands of dollars on a daily basis (you can view my gains here).
While day trading is mainly a form of income, traders may still allocate earnings towards long-term investments to further build their wealth.
Which investment strategy is best for you?
As investors, we need to identify the best way to take advantage of the tool that is the stock market.
Long-term investors should focus on increasing their income to flood their portfolios with compounding effects.
Short squeeze traders should draw out a macro vision board to determine which path to take after short squeeze profits are secured.
Day traders would be wise to invest a portion of their income towards dividend paying assets or physical assets (such as property or a business) that will produce cashflow.
Building wealth is about having your money work for you so that you can have the time freedom to do what you love most.
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