There are numerous different ways to look at trading and investing and view point of trading vs investment can vary from person to person. I look at trading and investment lot different than many others and for me trading and investing are two different approaches to the market.
I will define trading and investments as follows:
Trading | Investment |
---|---|
Market positions are taken based on sentiments of other traders. | Investing is more about investing in the business potential of the management. |
There are numerous studies to predict market sentiments and I prefer to be using technical analysis to predict market sentiments. | Business evaluation can be done by understanding the business as well as various aspects of business. I prefer to use the following 7 point principle to fundamental analysis. |
The one principle to trading and investing that everyone should follow is:
Never turn a trade into an investment and vice versa
Trade is mainly working on the principle that is to buy with certain patterns that are being formed in the charts which means there is certain interest in the stock for whatever reasons they are and so we follow the pattern, trade along and are out of it just before the patterns turns its heads on or what you have assumed just did not happen.
Investment on the other hand is investing in the business. They cannot be measured on a day to day basis and the earliest they can be evaluated is on a quarterly basis where companies declare results.
The process that you follow to evaluate a business will give you the confidence to remain invested in the business even if the share price of the stock goes down but if just converted your trade into investment or invested because someone recommended it to you, it will be really tough for you to remain invested in such a stock. Even if you happen to remain invested, it will not be very convincing investment and your aim will be to square off the position without capital loss.
I have seen numerous positions of many of my blog readers, friends and relatives where they had a trading position and as the position became loss making, they just became long term investor in the same stock. People do so because:
I invest in business and trade in chart patterns. Slowly as my portfolio is growing, I am making a move from a trader to an investor.
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