This article will not teach you how to Invest nor Trade. It’s going to explain what each strategy is and their differences in simple terms as we like to do things around here.
Investing and Trading both have the same goals: make $$$ using technical analysis and/or fundamental analysis always seeking for a momentum. Their main difference relies on their timing. They both want to make a profit but just How Fast? How much? How so? Two distinct strategies carrying different values and characteristics.There’s a probability we are using these terms incorrectly on our daily basis, and the market calls for a good understanding of them both.
“Calling someone who trades actively an investor is like calling someone who repeatedly engages in one-night stands a romantic.”
–Warren Buffet, considered one of the most successful investors in the world.
Professionals in the market do not like the misinterpretations of the two, and according to Mr. Buffet they are fundamentally different.
Strategy: buys to hold for a long time.
Seeks for a long-term growth of wealth, steadily growing in the long haul. Investing in companies they believe to be steady and predict will do even better in the future to provide them with returns and dividends.
“Our favorite holding period is forever.”– W. Buffet
In investments, you buy and hold for several years, usually 5+ years to life. Investors value the future much, with a main focus in savings and the savingprocess, planning the future diligently.
When investing, you apply your money to a particular market, and basically get to “forget about it”, no need to be checking on them on the hour not even every month. I’ve seen some experts advise customers to forget about their money for at least 25 years!
I wouldn’t do that if I were you, dude a lot can happen in 25 freaking years…. Just saying.
But anyhow, investments are not to be checked upon all the time. It’s meant to let it sit and ride the waves. And hopefully just like this Dow Jones 15-year analysis below you might have a 200% gain…
Hey you never know!
Credit for all Images on this post of Trade for a Living via Trade Smart University
When investing in Stocks, you can choose to manage your investments yourself or you can pay somebody to do it for you, but for cryptos you know the deal, you manage your money without third-parties.
In traditional investing, you buy and hold, in hopes for the market to go upin the long term as mentioned, and market down is seen as a threat.
Traditional methods are valued by investors because it saves them money, while they make money. Usually making them a profit of 15–20% per year. They are focused on saving and multiplying those savings.
Strategy: buys to hold for a little while and sell again.
A method of holding on to cryptos or stocks for a short period of time, for hours, days, weeks, and months.
Trading values present time, making cash asap. Always predicting the market will go in a certain direction which they follow by buying when market chosen is low and selling when it skyrockets.
They enter the “games” with pre-decided prices to be able to stay “rational” during trading and pull out whenever they see they will fall under pre-decided prices.
Active Traders want the market to move, they have strategies that do notrequire for the market to simply go up in order to invest or make money. Whether it goes up or down they have a different strategic approach, to make profit, profiting about 20% monthly.
Frequently asked question: Is Trading like Gambling?
“Gambling has a fixed odds system for all major games, while trading in the markets is truly unpredictable. The house or market does not have any unfair advantage as with casino style games.” — AI from Tradingism.com
Short-Selling: strategy used by traders to make profit when market goes down.
You borrow stock, sell the stock, buy the stock back and return stock to lender.
Here is how it works:
For example, if an investor thinks that Tesla (TSLA) stock is overvalued at $315 per share, and is going to drop in price, she may borrow 10 shares of TSLA from her broker and sell it for the current market price of $315. If the stock goes down to $300, she could buy the 10 shares back at this price, return the shares to her broker, and net a profit of $315 (selling price) — $300 (buying price) = $15 per share. However, if TSLA price rises to $355, the investor could net $315 — $355 = — $40 loss per share. (via Investopedia)
Market is down they buy, up they sell, down again they Short-Sale.
Styles of Active Trading:
- Faster process, usually starts at the time when the market opens. They buy and hold and sell again within 6.5 hrs. (or less) for stocks, and no time control for cryptos.
- They have no overnight risks, which is a big concern in the trading field, because they trade during the day.
- There’s no minimum amount in case you are trading with cryptos. But for stocks it’s a 25.000USD minimum equity.
- It can be a little hard when it comes to watching over your shares and cryptos, its hard even to go to the bathroom… You cannot take your eyes off of it.
- How much you make or lose it’s really up to your skills and experience.
- More expensive, operational fees are something to be on the lookout. Don’t let it become your worse enemy in trading.
- At-home trading.
- Slower paced, holding time varies from 2 days to several weeks, seeking for trend-momentum where they believe price will move in a certain direction so they can make their move.
- With overnight risks, because it might last for a couple of days or weeks, watching it all day and overnight can be tricky.
- Less expensive.
- At-home trading.
For Day and Swing trading, traders must be quick to find opportunities in short time frames. Large companies, when it comes to stocks, do not get involved in this because they move much larger amounts of money, which makes it hard to move that quickly. Now, with cryptos no one gets to tell you how much money you trade nor is there anyone to give you a time frame, opening the horizon for trading large, or as you wish for small medium and large businesses.
[Swing trading is one of the most popular forms of active trading, where traders look for intermediate-term opportunities using various forms of technical analysis. If you’re interested in swing trading, you should be intimately familiar with technical analysis.] via Investopedia.com
And just to add to that, you should also study fundamental analysis, usually when investors and traders use one they do not use the other, but it’s been proven successful strategies, especially when you combine both.
Now, let’s talk about the strategy of HOPE.
HOPE IS NOT A STRATEGY, LOL.
If you choose to enter the trading world please make sure you do it wisely, there are several courses you can take online, lots of free videos on YouTube to learn charts, technical analysis and fundamental analysis.
After all, which strategy is better?
There is no such thing, each strategy should fit your needs, your lifestyle. According to your skills and experiences.
Is this for everyone?
No, this is not for everyone. This is not just a technicality issue, even though very important, but also an emotional one. Professional Trading cannot be done under emotions, it will ruin your psychological with all sorts of cognitive biases. One must be emotionally ready, psychologically strong and prepared.
Now, long term investments are usually good for most investors when invested wisely.
“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” — Warren Buffett
This article is not meant to be a financial advice, engage in your own due diligence.