Aggressive trading chases profit in rising stock markets. Such trading needs a rising market as well as price, volume, orders and buyers to make profits. Although traders chase market action for profit, trading is not investing. Investors must know the difference.
How does trading differ from investing?
Money Choices That Grow Wealth course 250, lesson 4, answers the question, how do trading and investing differ? At the end of the lesson, links to related content help you learn more.
What you learn:
Traders need movement and a buyer!
Know the difference between investing and trading.
Trading: an aggressive market play that chases profit, needs a few pieces in place. Traders need a rising market, increasing price, growing volume, order growth and more buyers. Although traders chase market action for profit, trading is not investing. Investors must know the difference.
Not for beginners. The higher risk strategy, trading: an aggressive market play that chases profit, does not suit a beginner’s portfolio. Trading has a steep learning curve. Trading can be very profitable for an experienced player. To succeed at trading, you need much knowledge, time and experience. Still, to be an informed investor, you need to know what trading means.
Aggressive trading chases profit, is a lesson in the Investing Choice course, from White Top Investor.
Trading is not investing
Investing means holding for a year or longer into positions that produce returns. In the best case the holding period spans many years. Trading refers to a broad range of shorter term strategies. Traders and experienced investors can profit using trading strategies.
Traders believe a higher price paying buyer can always be found for shares they own or buy now. Buying now, traders expect, pay me more later. When right, the trader profits. When wrong, losses happen. Investors believe, pay me now! Investors get regularly and reliably paid.
Traders accept higher risk and possible losses in exchange for possibly making more later. Investors want lower risk, reliable and consistent returns with downside security. When right, traders make more. Especially over short periods. However over many years investors consistently outperform.
Successful trading requires time, knowledge and experience to do well. It requires focus and discipline. Traders must pay close attention. As noted earlier, trading has a steep learning curve!
Even a new investor needs awareness of trading. Or at least know the difference between trading and investing.
Remembering that trading: an aggressive market play that chases profit, is not investing. When you know, you can be clear with advisors and partners that you do, or do not want to trade. New investors should never learn the stock market by trading. First learn to invest. You do not learn investing using a trading strategy. Trading strategies are high risk approaches to the market. That makes trading especially dangerous to the portfolio of a new investor.
You need to know this because trading gets vast media coverage.
Investing, trading and breaking news
When you know the investing basics, media noise about trading does not mislead.
Media stories and words often leave the impression that trading and investing are the same.
Every investor needs to know how the media covers stock markets. Watching the intense coverage can mislead investors. Overwhelmingly the endless business media noise reports trading activity. That constant din can lure investor to think trading news is investing information. Most often that is not the case.
See the lesson on: Media: From Town Crier To Internet Liar. That lesson more extensively covers how investors deal with stock market and business reporting.
Basic Trading
Good trading strategies in strongly trending markets work very well to produce substantial profits. When markets trend up, trades are “long”. That means the investor buys or “goes long” on a stock. They expect that the price will continue to rise or trend higher.
The most conservative or basic trading play seeks to find a stock with a rising price trend. Traders buy in with higher price expectations. At higher risk yet some traders buy even when other investors are not. That can beat the herd but it can also leave them sitting alone in an orphan stock.
That patient approach seeks to find good companies expected to trade at still higher prices in the future. It can require waiting some months for the price movement to happen. Once a price trend gets underway, the movement can extend over many months.
Most trades of this type take 6 months to 2 years to play out. Most traders close or sell their positions in less than a year.
Traders want these 5 risers:
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market rising
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price rising
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share volume rising
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order volume rising
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number of buyers rising
Serious trading action happens when all five market characteristics rise together. At those times traders make their biggest plays.
Like basic trading, more aggressive trading also needs favorable or positive market movement. For all trades up trending markets serve as the base to build trades.
Once the market provides a clear and overall market trend, check the other characteristics. When the other characteristics also rise, look for trading opportunities. They usually abound. That opens the door to momentum plays discussed in another lesson.
How does trading differ from investing? Answered!
How investors buy dips matters because corrections are part of stock markets and present opportunities for sharp investors. Savvy investors need to manage dips to produce the best investing results. Knowing the three steps covered in this lesson can put money into your pockets.
Lesson takeaways,
Aggressive trading chases profit
Experienced short sellers combine timing, judgement and facts into effective, profitable broad stock market vision and awareness.
- Corrections with 10% price drops happen regularly.
- Dips and corrections generate much meaningless market noise.
- Corrections are quick 2 to 14 week events about once a year.
- Cause, effect and timing of corrections has not been discovered.
Other lessons related to:
Aggressive trading chases profit
Winston Churchill sees opportunity in crisis
Investing success needs control
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Money Choices That Grow Wealth,
lesson links:
Introduction to Money Choices That Grow Wealth Lesson 1
3 Stock market approaches Lesson 2
Income, value and growth investing Lesson 3
3 Distinct investing approaches Lesson 4
Aggressive trading chases profit Lesson 5
Momentum investing trading play Lesson 6
Speculation returns for big risks! Lesson 7
Risks complicate spectacular returns Lesson 8
Speculation failures improve investing Lesson 9
Middle trader thinking differs Lesson 10
Investing trading and speculating differ Lesson 11
Buying ETFs accelerates returns Lesson 12
Next lesson 6:
Momentum investing trading play
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