Introduction to Trading vs Investing

 

 Day traders tend to only hold positions intraday (occurring within one day) , whereas investors will hold for months or years at a time

Difference Between Day Trading and Investing

The main difference between trading and investing is the activity levels and position holding times. Trading involves active management with a short-term holding period, whereas investing involves passive management with a longer-term holding time usually spanning from multiple quarters (3 months) to years. Day traders focus on short-term trades contained in a single trading day. Whereas, Investors tend to monitor portfolio positions periodically from weekly to quarterly through statements and online browser based platforms.



Day traders analyze short-term price action whereas investors analyze longer term trends


Technical Analysis vs Fundamental Analysis

Trading relies more on technical analysis utilizing charts and technical indicators. Investing focuses more on fundamental analysis including earnings reports, news, financial metrics and ratios. In simple words,  traders are more interested in a stock's price action, whereas investors are more focused on the underlying company.

Traders have different criteria than investors when looking for stocks. As mentioned above, traders are more focused on technical analysis. Traders are not too concerned with a companies long-term potential, management team, etc. Instead they are focused solely on price action.

Traders look for stocks with momentum and volatility (The no. of stocks traded during the day is called volume. More the volume, more the volatility of the financial asset. Higher Volatility is ideal for traders). This creates the opportunity to take advantage of significant price action. It also provides the liquidity necessary to get in and out of positions.

Contrarily, investors are focused on good companies: companies they believe will grow in the coming years. Whereas volatility is beneficial to a day trader, it could represent instability to an investor. Investors tend to look for safer stocks from more legitimate companies. 

The blog is already relatively big, so to know more about the technical and the fundamental analysis, keep your eyes open for my next blog!

By - Pranit Bhandari



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