Week 3: There Is More Than One Way to Trade

Investing and trading are often talked about as if they were the same activity at different speeds. This lecture treats holding period as the variable that decides which costs and risks actually apply to a position, and surveys the styles the rest of the semester will name explicitly — buy-and-hold investing, swing trading, day trading — without yet teaching how to do any of them.

The question this week answers#

Holding period isn’t just a style label — it decides how often the execution friction from Week 2 gets paid and which risks from Week 5 apply at all. What actually separates “investing” from “trading” along that axis?

By the end of this lecture#

• use holding period as the organising axis for the rest of the course
• compare investing, swing trading and day trading on the same two axes: typical holding period and primary goal
• explain why a style is a fit-to-goals question, not a best-versus-worst one
• locate where each style reappears later in the semester

Key ideas#

Holding period — how long a position is typically kept — is the single variable this course tracks most closely, because so much else (which costs matter, which risks dominate, how much attention a position needs) changes with it. A position held for years behaves differently, mechanically, from one held for hours, independent of which one is “smarter.” Shorten the holding period and the spread from Week 2 gets paid more often; the account also spends more time exposed to the drawdown risk Week 5 quantifies.

Three styles get named this semester: investing (long holding periods, usually years, goal is typically long-run growth or income), swing trading (holding periods of days to weeks, Week 6), and day trading (positions opened and closed within a single day, Week 7). None of these is presented as superior — they suit different goals, amounts of available time, and tolerance for the costs and risks that Week 5 covers.

A worked example#

Three simulated students each start with $10,000. One buys shares in a diversified fund and checks the account twice a year. One opens and closes a handful of stock positions a month, holding each one to a week or two. One opens and closes positions within the trading day, holding nothing overnight. Same starting capital, three entirely different sets of concerns — none of the three is described here as the “right” one.

The numbers#

Holding period implies roughly how many trades a style produces in a year. With about 250 trading days in a year, a rough estimate of trade frequency is:

trades per year ≈ 250 ÷ average holding period in days

• average hold of 180 days (long-term investing): 250 ÷ 180 ≈ 1.4 trades a year
• average hold of 5 days (swing trading): 250 ÷ 5 = 50 trades a year
• average hold of 1 day (day trading): up to 250 trades a year

This is a rough estimate, not a rule — but it shows something real: shorter holding periods multiply how many times execution costs like the spread from Week 2 get paid.

What a diagram would show#

A timeline: three horizontal bars of very different lengths (years, weeks, hours) placed on the same axis, labelled investing, swing trading and day trading, making the holding-period difference visible at a glance rather than just stated in words.

Try it yourself#

The takeaway#

Style is a fit question, answered by time available, goals and temperament — not a ranking. What holding period does settle, unambiguously, is how often the mechanical costs from Week 2 and the risk tools from Week 5 get applied — shorter holds mean more frequent exposure to both, which is exactly why the rest of the course is organised around it.