What are 'Weak Longs'?

Weak longs are investors who hold a long position and are quick to exit that position at the first sign of weakness. This type of investor is typically trying to capture upside potential in a given security but is not willing to take much loss. These investors will quickly close their positions when a trade does not move in their favor.

BREAKING DOWN 'Weak Longs'

Weak longs are often short-term traders rather than long-term investors because they are unwilling to hold their positions through market fluctuations. If a trade does not move in their favor, they will quickly close their positions and look elsewhere for opportunities. Most weak longs are momentum traders who are more interested in making a quick profit than investing in undervalued companies until they reach a fair value.

When weak longs close their position, it may present an opportunity for investors to buy into the dip and reduce their cost basis. The selling pressure that weak longs create when closing out their positions can lead to consolidation in a stock following a significant uptrend. This explains why stocks tend to top out after following an earnings announcement because these traders lock in their profits and move on to other investment opportunities.

The benefit of a weak long is that the investor can lock in profits immediately rather than succumbing to cognitive biases such as the disposition effect – or holding onto a losing stock for too long. The drawback is that weak longs tend to generate substantial churn in their portfolio and it can be harder to remain profitable over the long term compared to a strategy of long-term investing.

Example of Weak Longs

Suppose that a company announces favorable earnings for the quarter. Short-term traders may buy the stock at the open to capitalize on the run-up while long-term investors may add the stock to their existing positions. Weak longs will hold the stock until it begins to consolidate following an earnings run-up. At that point, they may sell the stock and move on to other opportunities. Long-term investors will continue holding the stock over the long term.

In addition, long-term investors may take advantage of the consolidation to add to their position and lower their cost basis. Long-term investors may wait on the sidelines following a positive earnings announcement and buy the stock after it begins to move lower and consolidate. This allows them to buy the stock at a lower price after the dust has settled and ultimately increase their long-term profit potential.

 

RELATED TERMS
  1. Weak Shorts

    Traders or investors who hold a short position in a stock or ...
  2. Position Trader

    A position trader is a style of trader who holds a position for ...
  3. Open Position

    An open position is any trade that has been established, or entered, ...
  4. Long (or Long Position)

    A long (or long position) refers to the purchase of a security ...
  5. Trend Trading

    Trend trading is a trading strategy that attempts to capture ...
  6. Flip

    A point when traders shift from having more long positions to ...
Related Articles
  1. Trading

    Day Trading: Top Scenarios To Take Profits

    Three ways to take profits while day trading, based on price movement and what the asset is doing that day.
  2. Trading

    The 10 Worst Mistakes Beginner Traders Make

    Traders generally buy and sell securities more frequently and hold positions for much shorter periods than investors, which can result in costly mistakes.
  3. Investing

    How To Outperform The Market

    Active trading is an investing style that aims to beat the market. Find out how it works, and whether it will work for you instead of buy-and-hold.
  4. Trading

    Short-Term Breakouts Point to Higher Prices in These Stocks

    These stocks are all in uptrends and recently broke out of short-term consolidations, signaling another up wave.
  5. Trading

    What Type Of Forex Trader Are You?

    Timing may be the key to uncovering your true strength as a forex trader.
  6. Trading

    10 Forex Misconceptions

    The currency markets are full of myths that can harm a trader's chances at success.
  7. Investing

    When to sell a stock

    Buying at the right price determines profit, but selling a stock at the right price locks it in.
  8. Trading

    Trading Volatility? Don’t Trade Stocks, Trade Options

    During times of volatility, traders can benefit greatly from trading options rather than stocks. We explain why.
RELATED FAQS
  1. How do I identify a stock that is under consolidation?

    Discover the three major characteristics stocks or securities exhibit when they are trading under a period of price consolidation. Read Answer >>
  2. Can a stock lose all its value? How would this affect a long or short position?

    A stock can lose its entire value, but depending on the investor's position, this can be either good (short positions) or ... Read Answer >>
  3. Is volatility a good thing or a bad thing from the investor's point of view, and ...

    Learn the basics of volatility in the stock market and how the increased risk provides greater opportunities for profit for ... Read Answer >>
  4. Can forex currency pairs exhibit consolidation patterns?

    Learn how forex currency pairs exhibit recognizable consolidation patterns. These patterns offer traders the opportunity ... Read Answer >>
Hot Definitions
  1. Return On Equity - ROE

    The profitability returned in direct relation to shareholders' investments is called the return on equity.
  2. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  3. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  4. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  5. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  6. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
Trading Center