Stock Market Trading Vs. Long Term Investing

There are different ways in which a person can make money in the stock market. One is by Active Trading, and the other through Long Term investing.

Active trading requires constant monitoring of one’s portfolio or current holdings. The amount of time you need to spend monitoring your portfolio depends on the kind of trader you are.

Scalper

Scalpers typically trade within very short timeframes. They don’t look at timeframes longer than a few hours. They buy and sell shares of the stock within minutes. As soon as their target sell price or cut-loss price is hit, they sell and close their positions. Scalpers generally trade with a huge volume, and because of the size of their position they tend to have tighter stops and sell points to manage their risk.

Day Trader

A day trader, based on the name itself, is one who buys and sells shares within the same day. They buy shares at the start of trading hours, or as soon as the stock hits their BUY price, and close their positions within the day as soon as their target SELL price is hit. Unlike Scalpers, Day Traders usually trade average sized positions and can take hours before they close their positions during the day.

Swing Trader

Swing Trading is also another form of short term trading, but unlike Day Trading, swing trades can take as long as a week or two, or even up to six weeks. Swing traders open a position, and close it when they see that the trend no longer favors them and then look for other stocks to buy and repeat the same process.

Position Trader

Unlike the first three types, a Position Trader has a much longer timeframe. Position traders open a position when they see that a trend has reversed from it’s current trend, and will only liquidate once they see that the trend has changed its course. Position traders typically keep positions open for months, and sometimes years as long as the trend is in their favor.

Long Term Investor

Long term investing, though not as exciting as active trading, is also one of the many ways to make money in the stock market. In fact, statistically, a person who stays invested for long period in a good company stands to make more in the long run compared to those who actively trade. The main difference between active trading and investing is that active trading uses Technical Analysis to determine buy and sell signals, while Long Term investors use Fundamental Analysis to determine if the company is worth buying or not. While traders generally avoid stocks when they’re going down, investors generally buy more as long as the fundamentals are still valid.

“Price is what you pay. Value is what you get.”- Warren Buffet

Long term investors typically employ one of two strategies. Buy and Hold, and Peso Cost Averaging.

  • Buy and Hold

Typically employed by people with large sums of money that they can use to buy lots of shares of a company in one go. Buy and Hold investors don’t pay much attention to price fluctuations and will just hold on to their shares for years until the stock prices hit their target sell price.

  • Peso Cost Averaging

This is an investing strategy that involves regular buying of shares over a period of time regardless of the price fluctuation. The objective of a person who employs this long term investment strategy is to accumulate shares of a company over a period of time before eventually selling it at a profit.

Traders rely on Technical Analysis and Price Action, Investors use Fundamental Analysis to determine value.

Active trading relies on timing one’s entry and exit in the market, while Long Term investing simples involves more time being in the market. It’s nearly impossible to time the market perfectly which is why even the most seasoned of traders can’t time the market right 100% of the time.

Time in the Market is better than Timing the Market.

The kind of strategy you wish to employ to make money in the stock market depends entirely on you. While active trading may work for some, it may not be as profitable or suitable for others whose jobs do not permit them to glance at their portfolio from time to time while they’re at work. In the end, it doesn’t really matter if you’re trading actively or just investing passively. What matters is that you’re making money, and beating inflation.

If you want to learn the basics of stock market investing, or maybe you already know the basics but want to know more, INVESTHUSIASTS will be having an event called Stock Market Launchpad on October 26, and Stock Smarts 2018 with Marvin Germo on November 16-20 in Dubai. As a former attendee myself, I can attest to the effectiveness of the programs in helping you develop your own trading strategies.

 

 

 

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One thought on “Stock Market Trading Vs. Long Term Investing

  1. I believe one of the most significant challenges with High-frequency trading is that the computer programmers who work so many hours each day on the formulas don’t have a clue how to day trade themselves.

    Like

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