How To Invest Long Term And Trade Short Term Whilst Remaining Sane And Solvent
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Free Your Mind, And Profits May Follow
Amongst financial types there is a division drawn between the notions of “investing” and “trading”. The former term, “investing”, is loaded with implications of deep understanding and a kind of moral fastidiousness akin to the Protestant Work Ethic or the delayed-gratification coda embedded in many religions. ("Give your life to compounding and dollar-cost-averaging the S&P500, and in the afterlife shall your offspring be rich!”). The latter term, “trading”, has negative connotations, loaded with implications of financial excess, fast-living and risk. Not coincidentally, trading is also about instant gratification. Bad!
This division is, of course, patently false.
Investing vs. Trading
Firstly, the only difference is the timeline. “Investing”, we can all agree, is a longer-term activity. “Trading”, as everyone knows, operates to shorter timeframes. And since the only difference is timeline, there must be a time period X which demarks one from the other. So, what is that time period? Anyone? Bueller?
That’s right. It’s nonsense. One activity, investing, is speculation over a longer timeframe which means tolerance of more volatility; and the other, trading, is speculation over a shorter timeframe which means tolerance of less volatility or indeed embracing volatility to make gains whatever the weather.
In some ways investing is the easier of the two, since if you simply choose the Buffett-advised route of dollar-cost-averaging the S&P500, reinvesting all dividends, with a holding period of “to perpetuity and beyond!”, then the combination of population growth and a resource-constrained world means that asset prices have so far Portnoy’d since inception. (“Portnoy’d", v., colloquial, “only gone up”).
Trading is hard, and it’s hard specifically because in trying to make money in a shorter time period, people tend to do things like (1) avoid even modest drawdowns and (2) leverage their moves to increase the amplitude of their moves. Messing up (1) can lead to also avoiding upside and messing up (2) can lead to, well, ruin!
There is no perfect method; we each have to craft a method that suits our own time availability, risk tolerance, ability to stand volatility, and so on. But in our work here at Cestrian we employ methods we believe to be helpful to investors and traders no matter their timeframe, no matter their account size.
We use four sets of tools to do so.
The Four Key Tools Of The Trade
- Top-Down Macro. This means understanding the direction of liquidity flows, rates, and such policy as affects securities pricing.
- Fundamental Analysis. We get to the heart of the income statement, balance sheet, cashflow statement, valuation analysis, management assessment and much more.
- Technical Analysis. Having understood the macro environment and the company fundamentals as best we can, we look to price and volume behavior to understand the likely direction of securities.
- Quantitative Analysis. Now, the first three categories above have a single weakest link, which is the analyst’s feelings. In sports, top-level athletes never lose to their opponents; they just beat themselves in their own minds before walking onto the field or court or course, getting into the car or onto the bike or whatever. In investing, top minds don’t get bamboozled by the market so much as get into an “infinite mirror” of arguing against their own analysis with such vim that they end up disbelieving the work they did in the first place. And this is the power of quantitative analysis. Because (i) right now we use humans to write machine-learning, AI-driven algorithms to make best guesses as to the direction of securities; the algorithm doesn’t suffer from self-doubt nor does it (yet) have a gut biome to deal with; and (ii) soon the algorithms will write their own algorithms and then we are going to see a change in the landscape, woo! But right now, today, we use quantitative analysis to give us an ice-cold reality check on securities direction. It’s invaluable to us, and it’s the future. If you aren’t using quant yet, you’re already behind, and it’s going to get worse.
Here’s how we organize our tools according to timeframe. We teach all these methods all day long in our Inner Circle service.
The Right Tool For The Right Job
Over months/years: Macro market conditions (supportive or unsupportive liquidity and rates environment); single-stock fundamental analysis; fundamental valuation analysis particularly to identify entry points at market lows; technical analysis to confirm entry strategy; Wyckoff Rotation volume x price analysis for further confirmation of entry and then exit timing.
Over weeks/months: Technical analysis to enable long/short hedged trading of index and some sector ETFs, including leveraged ETFs. A truly market-neutral strategy offering gains in any environment - as long as you don’t go max long at the highs or max short at the lows!
Over days/weeks: Quantitative analysis providing entry / hold / exit signals for Bitcoin, equity index and sector ETFs.
Multiple Timeframes All At Once
You don’t have to choose your timeframe. You can just think in multiple timeframes all at once.
If you are many years from retirement, you can treat retirement accounts as longer-term investment accounts, using capital to buy major market lows when they come along every few years and realizing gains at major market tops. Our macro, fundamental, technical and Wyckoff Rotation analysis will help.you do so.
If you run a trading account, we can teach you how to run a core hedged portfolio to give you multiple shots on goal, whatever the market direction. Technical analysis is really all you need for this.
In pursuit of additional performance to that trading account, you might choose to ‘overhedge’ in the direction the market is traveling. In Cestrian staff personal accounts we do this using our quantitative signal services.
That might mean going long Bitcoin using our Bitcoin Signal Service (available as a Slack channel here for investment professionals, here for independent investors, or here as a built-in indicator within TrendSpider).
Or it might mean using our SignalFlow AI Growth Service to rotate capital between sector ETFs (all our SignalFlow AI services are available here).
Seem Daunting? It Isn’t.
If you’d like to raise your game, be it at investing, trading, or both? Join our Inner Circle service, here, and start today. Whether you manage capital for your investors, advise capital for your clients, or run your own capital, we can help you perform better. We’ll teach you the above methods and more, and show you how to bring together these different methods to good effect.
Alex King, CEO, Cestrian Capital Research, Inc - 7 July 2025