Investing vs. Trading: What's the Difference?
Introduction
In this article we discuss Difference between Investing vs. Trading ? if you are a
beginner this article helps you a lot
investing versus trading you know any new entrant in the stock market first believes that
he's an investor but slowly and steadily he changes his profile and all of a sudden becomes
a trader then what happens in this entire process of shift from an investor to a trader many
times he burns a lot of money and then he says that stock market is a gamble he'll label it
that way so what is the exact difference between investing and trading and why knowing
yourself is very important so without wasting more time let's get started...
crisp difference between trading and investing
before you start your investment journey in stock market let's try and understand the
well trading involves short-term strategies in a very short span of time you're going to
frequently buy and sell and try and generate profit what's about investing
Investment based point
Investing involves strategies for a longer time horizon wherein the main purpose is not to
create a short-term profit but it is to create a long-term wealth
Trading based point
trading is based on various points like trading indicator technical indicators psychology of
the market money management risk reward and so many more points
whereas investing involves checking the fundamentals fundamentals of what fundamentals
of the company fundamentals of the industry of the economy you have to check out the
competitors and few more points
RISK DIFFERENCE BETWEEN THEM
- Trading
if i talk about the risk obviously for trading risk is a shared on a higher side because of a
smaller time frame you have to be very precise with your entry and exit points
- Investing
if i talk about investing investing is again i'm repeating but it is for a long term it's for a
longer a purpose of wealth creation and that is the reason why the overall risk is lower
" if i talk about the outlook for a"trader" the outlook can be continuously changing today
the outlook is positive tomorrow the outlook is negative in fact even Intra-day basis also
the outlook of a trader can change from time to time but for an investor ideally for a longer
term perspective the outlook for the market is always positive if i'm talking about how
much time you have to dedicate if you were to be a trader if you are to be trader ideally you
have to be in front of your screen from 9 15 to 3 30 and try and fish out opportunities
during the day "
but if you are an investor you need not be in front of the
market every day you can just study analyze invest and kind of forget you can just
check out the stock or your investment on a monthly or a quarterly basis
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seven key points to be good traders ::)
let's understand what are the seven key points that you should understand if you were to be a good trader
- you should gain knowledge well you can't start anything without having proper knowledge and the same rule will obviously also apply for trading now if you were to be a good trader " you should have hands-on knowledge about technical analysis you should know what are the different types of trends you should know what are the different types of patterns you should know so many more points about technical analysis " and if you don't have that knowledge you can check our website
- the second point is do virtual trading so assume that you do my course or you already have knowledge about technical analysis now comes the second point where you apply your knowledge for the trading purpose but should you ideally go and start trading in the stock market no don't do that first try and take paper trades okay what are paper trades is as good as just writing down okay i would have bought this stock at this level right now this is my target price this is my stop loss okay once you start getting that feel that ah nice my trades are going right then slowly you can start and put up actual trades rather than virtual trades so it's a journey of learning and then possible learning all right
- third one is the trading strategy so while you write down all your trades on your paper then try and see what is working for you what is not working for you so basically you try and and you know make a strategy for yourself assume it's a swing trade strategy okay in a swing trade you'll typically see this is what let's say if an inside candle is formed data whatever just as an example then you will enter if this point is it then you will exit so what did you do you just try to find a strategy are you going to stick to that strategy yes okay otherwise many times it is there in your mind but not on your screen should not happen have a strategy and use it properly
- next one is avoid a lot of leverage as an intraday trader ideally you are bound to use leverage but please don't overboard on that you might end up losing a lot of money
- the next point is very very very important as a trader you must be able to manage your emotions and you should be able to take better decisions you know what happens you take a buy trade based on your strategy it might happen that the moment you buy it starts falling and you're like now what now you are in sudden tension and you close the trade okay and what happens after you close the trade it is bound to go up right first time same thing happens second time same thing happens and third is your revenge trade question then you are going to enter the trade just with the emotion of revenge and you are like i am going to earn profit in this trade and you might be more irrational in the third trade and again you might end up losing money right so there's an amazing feature which zero that has introduced right now which is the kill switch feature wherein if you lose two trades back to back you can enable the skill switch feature wherein zerodha will not allow you to trade for next 12 hours so these 12 hours are for what sit down relax try and analyze what went wrong and then take the third trade i think this is an amazing feature
- amazing work by nathan kamath and his team next one is use your stop losses many times traders have stop losses absolute stop losses where in their mind that stop-loss should not be on your mind it should be on your system if that be so then only you will honor the stop losses
- and the last point is do a post-trade analysis as well you know i was talking about writing down those trades paper trades that is when that is before taking the trade okay once you close off the trade again update that sheet and then analyze that out of whatever trades you took which went in favor which went against your thought process then try and analyze what went right for you what went wrong for you instead of writing it on a piece of paper again there is one more feature which has been introduced by zerodha that is zero that tags this tags feature helps you to key in
- whatever i told you right now instead of writing down on a piece of paper it's as good as you write it down on the system
if you want to be a good investor a pre-determined pre-decided investor now in the next section i'm going to talk about seven key points that you have to remember as an investor
now let's understand the seven key points that you have to remember as an investor
seven key points to be a good investor ::)
- the very first one is as usual train yourself now for that what you have to do you have to train yourself to identify companies which are good companies now what do i mean by good companies they should be fundamentally strong companies now the big question is how to do fundamental analysis of a company for that
- rebalance your portfolio are you going to rebalance every day no what you can do check out the quarterly results if two three back-to-back quarters the company is not doing well you may consider rebalancing your entire portfolio
- next point is about look for companies having a moat what is mode mode is nothing
so what can be a competitive advantage competitive advantage can be about a brand
identity it could be about a patent it could be about the size or the market share that the
company has if that be so it's always good to invest in companies having a good moat
example well example can be of asian paints asian pens has a good brand they also have
a good market share almost 40 percent of the paint industries market share is with only
asian paints right going on to the next point you should be very much clear that you have
to diversify your portfolio we always say never put all your eggs in one basket same logic
applies here as well are you going to have only one stock in your portfolio no diversified
very well and that is why have 100 stocks in your portfolio no why over diversification is
also bad correct so have a limited number of stocks in your portfolio but
always remember if you are betting on a specific stock let us say you have 10 stocks in
your portfolio and number one stock is your favorite and number 10 out of those 10 is
your comparatively lower favorite now you only tell me the amount of investment in that
first stock and the amount of investment in that 10th stock should it be same or should it be
different ideally it should be different the higher amount should be allocated for your most
favorite stock which is going to be fundamental fundamentally terrific company and
comparatively lower investment should be there in the 10th stock
- set a goal and based on that goal you have to start your investment so for example if you
have a very short-term goal okay let's say like two months three months goal and you
invest in a stock like let us say art industries today assume now i have already told that
it's a company which is into an expansion mode right now they are doing a heavy
capital expenditure so company which is doing a heavy capital expenditure their
operating cash flows are ideally going to be negative they might not be able to generate
good cash flows in a short span of one month or two months but if your goal was a
long term goal say three months three say three years five years in that case i may say
that earth industries would have been a good bet because at that point in time their
capex which they are doing today might start generating revenues right so what is the
first step set a goal
- you can track the performance of your small case on a month on month basis and very
important one you can hit that share small case button and you can share this link
through whatsapp through insta whatever and i think this can be a good way of sharing
knowledge with your friends and family members
- invest based on your goal know your risk appetite so what could happen many times you
down you could just sell off that sharing panic if you are going to do that then what is the
problem problem is that you have not done a proper kyc and what is kyc know your
customer but what what term do i use know yourself you should first understand your risk
appetite okay and if you know that you are a risk taker in that case you might also consider
investing in companies like yes bank or even for that matter idea of course this is not an
investment advice i'm just telling you a person who is a risk taker may feel that what if
there is some nice turn around story i might be in a position to double the investments but if
a person who has a very low risk appetite
if that person invests in a company like yes bank or
idea be sure that he's going to be in tears after a few months or years right so moving ahead
with the fourth point which is invest early and invest regularly i'm sure everyone has heard
about the term sip what is sip save invest and prosper systematic investment plan right so
what do you do here you invest a specific amount of money every single month okay can
you do that very easily in mutual funds yes can you do that in stocks you can
possibility number one do it manually okay so for example you choose your list of five
favorite stocks which are fundamentally very good and without fail every fourth of the
month every fifth of the month tenth of the month whatever you go to your specific broker
site you add these five stocks and you do that every month on month possibility one possibility
number two you can also create a small case for yourself you can create a small case add
these five stocks and define that every month add one quantity two quantities of those
stocks in a systematic manner in that case you need not do this manually every month so
it's just about saving your efforts well just in case if you don't know how to create your own
small case i thought let me just quickly tell you how that can be done
example ->
I feel that insurance sector overall penetration right now is comparatively less
so i search for some insurance talk let us say HDFC live so i can search here and i can add
it up here next i feel that it can be a game changer in the coming few years so one of the
good stocks in id space fundamentally happiest mind is what again i can add up and one
more stock which i feel can be one of the future stocks why because more and more retail
participation is coming up in india right now and there are only two major depositories one
is nsdl one is cdsl out of these two only cds is listed so i can say cdsl before i proceed again
this is not a recommendation i just feel that these three companies are fundamentally good
so i'm showing you an example
of how to create your own small case once you have added all these three i'm just going to
hit done okay now if you want you can also change the weightage of this so for example i
want the hdfc life weightage only to be let us say 25 okay for happiest mind let's say i want
it at 38 percent okay this is just random
examples
and here then automatically it will take the balancing as 37 okay with that now i can just hit
save can i name this yes so let's say i am naming this as c-a-r-r see rashford future stocks
okay so if i name it like this and investment objective is whatever right now
- but of course what is that i believe that these can be the upcoming stocks then i just hit
is that every single month automatically you can create an sip now what will happen
with this month on month one one stock or whatever as per the weightage that you get
keep on that will keep on adding to your portfolio number one advantage
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CONCLUSION-:
So, i hope you understand difference between the investor and trader in this article we
discuss 7 main key points to remember for investor and trader if you want to be good
trader and investor i highly recommend you to please read the full article it will help you
alot
>>>>>>>>>>>>>>>>>>>>>FAQ<<<<<<<<<<<<<<<<<<<<<<<<
- WHICH IS BETTER TRADING AND INVESTING?
trading involves short terms strategies to maximize returns daily
but investors are more likely to ride out with short term losses now its totally depend on you which one you want to choose
- IS TRADING MORE PROFITABLE THEN INVESTING
once you learn and master the principle of trading you can earn 15-20% profit everyday
- IS LONG-TERM INVESTING BETTER THEN TRADING?
long term investors always focus on diversification, risk-adjusted returns, low turnover and time tested principles
traders try to pick the next unicorn or turn a quick profit
- IS WARREN BUFFET A TRADER OR INVESTORS?
warren buffet is a investor
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>><<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<
SO, THAT'S IT FOR TODAY'S I hope you don't get bored by learning something from this
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