A definition of Buy and Hold Trading
Buy and Hold Trading literally means "buy and maintain", a translation that gives a fairly precise idea of the characteristics of this style. In fact, Buy and Hold Trading is defined as the approach that involves keeping a position open for a long time, in order to take advantage of the underlying trends. It is the trading style with the broadest horizon, even more so than Swing Trading. In some ways, it is similar to classic investments, those made by small savers (almost always with their reference banks). The Buy and Hold Trading is the opposite of Day Trading, an increasingly frequently adopted style, which requires closing all positions within the day (or the end of the session). It is even further away from scalping, which consists of opening and closing positions in a tight loop, even within tens of seconds.Pros and cons of Buy and Hold Trading
Buy and Hold Trading can be considered a style like any other, in the sense that all of them, if carried out with expertise and discipline, can give results. Therefore, it is good to make the clarification: the choice of style is always up to the individual, as there is no universally and objectively better one than the other. So, it is good to review them all and decide calmly, according to one's aspirations, inclinations, and goals. That said, we can move on to examining the pros and cons. Here are the advantages that Buy and Hold Trading can guarantee.- Static management and virtually effortless. In light of the extremely long time horizon, the trader - or it would be better to say the investor - doesn't have much to work on. After all, the moments of opening and closing, in which strategic and operational activity is traditionally condensed, are very distant.
- Assured gain if the trend is bullish. Since Buy and Hold Trading acts exclusively on long-term trends, i.e., macro-trends, if these are bullish, the gain is not only certain but even inevitable.
- Assured loss if the underlying trend is bearish. On the other hand, if the trend is bearish, then the loss is equally guaranteed.
- It does not allow to take advantage of price oscillations. It goes without saying that if the trading is long-term, indeed very long-term, the possibility of exploiting price oscillations, which still represent an opportunity for gain, is totally precluded.
- Difficulty in understanding the direction of macro-trends. Paradoxically, understanding the extent of macro-trends is almost as difficult as intuiting future oscillations. The reason, although not taken for granted, is easy to understand: long-term analyses are compromised by an excessively high number of events and micro-events.
- Exposes the trader to some pitfalls. To tell the truth, all styles do. That of Buy and Hold Trading, while not being the most dangerous, is however the most peculiar. We talk about it in the next paragraph.
