You may have been wondering what the difference is between investing and trading, or you may have been wondering, “Am I an investor or a trader?”, or you may have never realized that there is a difference in trading. the first place. In this article I will explain the difference between investing and trading.
The definition in its most basic form is:
“Investing is the attempt to make money over a LONG period of time”
“Trading is the attempt to make money in a SHORT period of time”
Now the question is: “How long is a LONG period of time and how short is a SHORT period of time?” The answer is: “It’s up to you!”
What does this mean? It means you might consider 6 months to be a long period of time to hold a stock, so call it Investment, and someone else might consider 6 months a very short period of time and call it Trading.
But for the sake of uniformity we will adopt the following rule:
“If the duration between the opening and closing of a transaction (i.e. the buying and selling of a security) can be measured in days or weeks, then this is Trading, and if the duration can be measured in months or years, So this is investment.
Trade:
Traders are typically only interested in looking at the price chart of a specific security or currency (usually the candlestick chart), looking for identifiable patterns or areas of supply and demand to determine their entry point, and they do the same thing to determine their exit, they stay in a trade for any duration between a day (or less) and a few weeks, they take a closer look at the market daily, to check if their trade is still valid or if it’s time to close it.
To be a trader, you need to be very familiar with technical analysis as well as be up to date on market conditions and upcoming events that could alter these conditions.
For example, if a company has its “quarterly earnings report” due out in a couple of days, you might want to keep a close eye on it, either as an opportunity to enter a trade or perhaps to close one that’s already open. .
Traders can be “Scalpers”, “Day Traders” or “Swing Traders”.
Resellers open and close a transaction very quickly, within seconds or at most a few minutes, looking for small profits, but they execute dozens, if not hundreds, of such trades a day.
Day Traders hold their positions longer than Scalpers, but they never keep any trades open for the next day, they close everything before the end of the day.
Swing traders hold on to their positions for days or weeks.
Figuring out the type of trader you are is very important to your success. It is very important that you are honest with yourself, there is no good or bad style, it all depends on your personality, the trading style you adopt must match the type of personality you have, otherwise you will be living a conflict, and this alone it can be detrimental to your trading account.
Invest:
On the other hand, investors rely heavily on fundamentals to decide to buy or not, and while traders can make money in a bull or bear market, investors can only make money when the price goes up, because a trader’s decision investor on whether or not to invest in company XYZ is based on whether he believes that this company will grow and expand in the coming months or years. If so, you will buy shares in it.
So how do investors decide which company to buy shares in?
As I mentioned earlier, they are based on the fundamentals. What does this mean?
It means that they read the financial statements that this company publishes (quarterly and annually) and try to find out as much as they can about the internal operations of this company, about its management, about its future plans, about its competitors. . Basically, they try to see how healthy the company is and if there is room for growth. This is called value investing.
These are the kind of fundamentals that investors are interested in evaluating a potential investment.
Investors don’t really care about small daily price fluctuations, they believe that if a company has high intrinsic value, then its share price will continue in the long run, so they try to buy the companies that have high value and sell at a bargain price.
I hope this article has clarified the difference between investing and trading.
On a personal note, I think every Wana-be-Trader or Investor needs to do a very thorough self-assessment to find out exactly what type they are and what their strong sets are that will be critical to choosing their style.
For more information about investments and trading, you can visit http://www.investment-education-diary.com
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