Many people often ask me which is better? Trading or Investing? I think investing is the way to go, but sometimes there are some trading opportunities. When I trade, I often tend to swing trade, hold a stock for 3-12 months, and sell it. Intraday trading is hard to predict and usually ends to losses and much emotion along the way. Investing is when you take a long term approach on a stock and hold it for many years. There are advantages to both these kinds of strategies but in my opinion, investing is the way to go, and if your a beginner, focus on investing before you try to trade. 90% of day traders fail while only 10% succeed, and a lot of the success is through luck.
Stock Trading is a short term approach to making money in the market; it could be done with small and large accounts. Traders try to benefit from short term changes in the market by frequently buying and shorting stocks based on trends and indicators. Trading is much riskier and is more expensive then long-term investing because it is much easier to take losses if your trading in a short time frame. Traders can lose money quickly on the wrong buy or sell and are subject to more trading fees and higher taxes on capital gains.
There are many different ways to trade; you can Scalp trade, Day Trade, Or Swing Trade. The only type of trading I do is swing trading due to less volatility compared to Scalping and trading Intraday.
- Scalp Trading is a trading strategy geared towards making profits in small time frames and making money off minor price changes in stock price. Traders who scalp tend to make 10-100 trades in a single day, believing that small moves in stock are more comfortable to catch and make money on than holding for an extended period. You can make much money through scalping if you have high leverage of 1:500. Scalpers rely on technical analysis with moving averages, candlestick charts, and MACD; many small profits can quickly compound into large gains if a strict stop loss is in place to prevent large losses. It would help if you had good mental discipline to be a scalp trader, and many scalp traders are now using machines an algorithms to the scalp for them.
- Day Trading is when you enter or exit in the financial markets within a single trading day. The economic appeal to day trading is a popular magnet, and you see people all over the internet who do it, you need to be able to stomach a lot of price movement and losses. Day trading can be very stressful and is hard work. The amount of effort required to day trade is often commensurate to the return. Even the most experienced day traders face losses; it is lucrative, and few are good at it. As a day trader, you need to embrace uncommon thinking markets these days have a ton of swings and jolts intraday, and you will lose money if you want to be a winner in the markets, then you must not engage in common thinking, stocks like NKLA are getting pumped by the market right now through the hype, and it will lead to the stock getting hurt later in the future.
- is a combination of fundamental and technical analysis to go long or short on. Swing trading provides a much more enormous profit potential then day trading or scalping. A swing trader does not place trades daily. Investors may hold the trade for a few days or weeks. It depends on how well the trends and swings are of the stock. Swing traders are usually trend followers who buy stocks that hold resistance at the 50-day moving average. Once the stock goes under the 50-day \ moving average on a swing trade usually means its a reversal, and its an excellent time to sell or go short. Swing traders look for trades on the daily charts because
Long Term Investing
A long term investment is any investment that has a higher (historic) probability of maximizing your returns over ten years. Long-term investments will not be sold for years and, in some cases, may never be sold. As a long-term investor, you are willing to accept a certain amount of risk to pursue high stock returns. Blue chip and tech stocks like Proctor & Gamble and Microsoft are great long term investments.
Invest in What You Understand
Famed investor Warren Buffett often discusses the concept of a “circle of competence.” This circle of competence consists of all the businesses with which the investor is familiar and thoroughly understands. An investor that has spent 15 years as a salesman in the pharmaceutical industry would have an advantage over your average investor. Another great way to learn a product of a company is buying going on LinkedIn and contacting a VP of a specific company to get a better understanding of a product or company you are looking to invest in. Suppose you don’t understand the business you invest in. In that case, you’re going to be highly unlikely to discern the noise from truly meaningful information that should factor into your decision-making,” says Thomas Sudyka Jr., president of Lawson Kroeker Investment Management in Omaha, Nebraska. Investments strategies that are too complicated are less effective than investing in what you know. If you don’t know what a company does and how they operate, how do you expect to get a solid return?
Start Investing Early As Possible
I can not stress this enough; investing early and averaging down on your investments will make you a ton of money. The S&P 500 averages a 9% annual return; with that rate of return, it would only take eight years to double your money off your initial investment. “Investors who start early, practice patience and stick to a long-term investing strategy often see the best returns and financial success,” says Colton Dillion, Co-Founder of Acorns, the investing app.
If Twenty-five year old Mike invests $4,000 annually over ten years in his company’s 401(k), with an average growth of 10 percent. When he retires, at the age of 65, his investment would have grown to $1,112,394
On the other hand, Bodhi, age 35, invests $4,000 annually over 30 years into his 401(k). At age 65, Bodhi, who has invested three times as much as Mike, will have $657,976 in his retirement account.
Mike began investing early and gave his money time to Compound; because mike started to invest early, he has $450,00 more than Bodhi to spend during retirement.
Spend Less Invest More
Those who delay investing for years often confuse what they need for what they want. Designer bags, Jordans, and monthly subscriptions are many things people can cut out of there spending habits. Instead of spending on stupid stuff, use that money to invest in your future. “Investing takes discretionary income, and discretionary income takes discipline. Question those things that have become the norm but may not be necessities.” In order to achieve your financial goals, you must cut out the unnecessary expenses; as much as you think you need the new iPhone or need that expensive designer belt, think to yourself what’s more critical for my future or this costly item.
- Target your savings first and then start spending
- Set a budget for each week on needs and wants
- 50% living expenses, 30% saving and investments, 20% discretionary spending
Stock trading is about buying and selling stocks for short-term profit, with a focus on share prices. Investing is about buying stocks for long-term gains.
Investing in the stock market is the best way to build long term growth; I do believe long term investing is the best way for the average investor to gain wealth. Stock trading can become like a casino, and apps like Robinhood incentives people to trade options, which has recently caused a kid to commit suicide because of it. The best way to build long-term wealth is to create an investment plan to buy, sell, and rebalance your portfolio. Be prepared for the long haul; patience and discipline will take you and your money a long way. Even $AMZN has declined 20% 14 times; if you trust the product and company you are investing in, hold it for the long haul, it will pay off. Trading feels good in the short term but could hurt in the long; as an investor, time is your friend’s time if, on your side, you don’t lose money until you sell.