Trading Vs Investing
A Large number of people are confused with what is trading and what is Investing. Investing on one hand is like buying a asset (a bunch of stocks is Stock market) and holding it for a long time say 10 or more years.
Many Investors buy stocks for long run and then sell them off in huge profit. Some big investors such as Warren Buffet have made more money in Long Term Investing or Investing rather that in Trading (Intraday).
Trading on the other hand it like buy a stocks for 2-4 Days or Intraday trading. In these volatile markets its very difficult to make good profits in Intraday trading, some traders intenend to buy stocks for short term and then sell them off in profits
Before we put any money into the stock market, we need to define our trading personality. The first step in this process is to determine whether we are traders or investors. Investors usually hold positions for a longer period of time than traders. This can be a matter or weeks, months, or even years. Traders usually hold positions for days or weeks, and in some cases for just a few hours.
Investors and traders use many of the same tools and techniques, but they adapt them to their trading personality and time frame. The time frame used is sometimes chosen for us. For example, if your profession or job does not allow you to monitor the market during the day, it will be very difficult to function as a trader, even though your personality may predispose you to active trading.
The key to successfully investing is of course the quality of the stock we chose. This is particularly important to investors, because they will hold their positions for longer periods. Fundamental analysis is very important in helping investors to select stocks that have strong ratings and a good long-term outlook. Investors are not concerned with the daily fluctuation of the prices because they know that they own fundamentally strong companies that in the long run should eventually go up in price.
Traders on the other hand can chose a style that matches their own personalities and risk tolerance. A day trader is one who is in and out of a stock in one day and never carries a position overnight. Relatively few traders can function in this stressful environment for very long. Most traders fall into the categories of swing, momentum, or position traders. These individuals usually hold their positions from a few days to a few weeks, depending upon the market. They let the prices determine entrances and exits. The fundamentals are not as important to a trader as they are to an investor; price movement takes precedence
Both the traders and investors can make good use of technical analysis to determine the timing of their entries into the market, as well as accurate exits. However, precise entries and exits are of more importance to traders than to investors.
Both investors and traders should monitor their positions on daily basis. Neither needs to spend more than thirty minutes each day tracking and evaluating their portfolio. Of course traders who decide to trade full-time to make their living must decide whether they are willing to make the time commitment to follow the market intra-day. This does not mean that they are glued to the computer following every stock tick. However, there are decisions that often must be made during the course of the market day that will affect their positions. The fact that we follow the market on an intra-day basis does not mean that we are day traders.
Most traders are also investors, although the reverse is not necessarily true. Even traders who normally hold positions in their trading accounts for a few days at a time typically also manage their retirement funds in an IRA or other retirement plan. These accounts are normally not actively traded, so you might say that those of us who have both types of accounts have a “split personality.” This is not a bad thing; both disciplines have much to offer.
The investor who does no active trading might do well to learn the disciplines of active trading, particularly in the area of technical analysis. The time may come when their investments will grow large enough that they can quit their day job and trade full time. The ability to monitor the market during the day may allow them to reap the benefits of active trading, provided their personality allows for it.
Whether you consider yourself a trader or an investor, make sure that you learn well how to make good entries and exits. When we teach investors, we emphasize the importance of this discipline. It does no good to but the right stock or option if you buy it after it has made its run, and sell it at close to the same price.
Copyright@ 2014. All Rights Reserved.
A Large number of people are confused with what is trading and what is Investing. Investing on one hand is like buying a asset (a bunch of stocks is Stock market) and holding it for a long time say 10 or more years.
Many Investors buy stocks for long run and then sell them off in huge profit. Some big investors such as Warren Buffet have made more money in Long Term Investing or Investing rather that in Trading (Intraday).
Trading on the other hand it like buy a stocks for 2-4 Days or Intraday trading. In these volatile markets its very difficult to make good profits in Intraday trading, some traders intenend to buy stocks for short term and then sell them off in profits
Before we put any money into the stock market, we need to define our trading personality. The first step in this process is to determine whether we are traders or investors. Investors usually hold positions for a longer period of time than traders. This can be a matter or weeks, months, or even years. Traders usually hold positions for days or weeks, and in some cases for just a few hours.
Investors and traders use many of the same tools and techniques, but they adapt them to their trading personality and time frame. The time frame used is sometimes chosen for us. For example, if your profession or job does not allow you to monitor the market during the day, it will be very difficult to function as a trader, even though your personality may predispose you to active trading.
The key to successfully investing is of course the quality of the stock we chose. This is particularly important to investors, because they will hold their positions for longer periods. Fundamental analysis is very important in helping investors to select stocks that have strong ratings and a good long-term outlook. Investors are not concerned with the daily fluctuation of the prices because they know that they own fundamentally strong companies that in the long run should eventually go up in price.
Traders on the other hand can chose a style that matches their own personalities and risk tolerance. A day trader is one who is in and out of a stock in one day and never carries a position overnight. Relatively few traders can function in this stressful environment for very long. Most traders fall into the categories of swing, momentum, or position traders. These individuals usually hold their positions from a few days to a few weeks, depending upon the market. They let the prices determine entrances and exits. The fundamentals are not as important to a trader as they are to an investor; price movement takes precedence
Both the traders and investors can make good use of technical analysis to determine the timing of their entries into the market, as well as accurate exits. However, precise entries and exits are of more importance to traders than to investors.
Both investors and traders should monitor their positions on daily basis. Neither needs to spend more than thirty minutes each day tracking and evaluating their portfolio. Of course traders who decide to trade full-time to make their living must decide whether they are willing to make the time commitment to follow the market intra-day. This does not mean that they are glued to the computer following every stock tick. However, there are decisions that often must be made during the course of the market day that will affect their positions. The fact that we follow the market on an intra-day basis does not mean that we are day traders.
Most traders are also investors, although the reverse is not necessarily true. Even traders who normally hold positions in their trading accounts for a few days at a time typically also manage their retirement funds in an IRA or other retirement plan. These accounts are normally not actively traded, so you might say that those of us who have both types of accounts have a “split personality.” This is not a bad thing; both disciplines have much to offer.
The investor who does no active trading might do well to learn the disciplines of active trading, particularly in the area of technical analysis. The time may come when their investments will grow large enough that they can quit their day job and trade full time. The ability to monitor the market during the day may allow them to reap the benefits of active trading, provided their personality allows for it.
Whether you consider yourself a trader or an investor, make sure that you learn well how to make good entries and exits. When we teach investors, we emphasize the importance of this discipline. It does no good to but the right stock or option if you buy it after it has made its run, and sell it at close to the same price.
Copyright@ 2014. All Rights Reserved.