Trading and Investing are the two types of methods that one can use while dealing in Stock Market , generally trading is when you buy and sell the stocks within very less time while investing refers to the process of holding your shares for a long period of time i.e months or years.
What is trading ?
Trading is the art of buying and selling or firstly selling and later on buying to make a profit from the stocks going up or down , if as per your analysis you expect the stock to rise then you will buy it and when it reaches your target you would sell the stock to book your profit , alternatively if as per your analysis you expect the stock to fall then you will sell the stock i.e short the stock and later on buy back the stock when it reaches your target level , hence one can make profit from both rising and falling stocks , Trading is generally reffered to the buying and selling in a less amount of time , from few minutes ( If you are High frequency trader ) to few days ( If you are a swing trader ). So now you must be confused by the terms like high frequency and swing , so we will cover those terms before we move on to investing.
There are three types of trading –
- DAY TRADING – This is when we buy or sell the stock within a day i.e if we buy the stock in the morning at 10 am and sell it at 3pm , thus day traders don’t take the delivery of the stock , high frequency traders are a sub category of day traders , high frequency traders buy and sell stocks within few seconds or minutes , generally high frequency traders have a large capital to make sense of such short holding time , day trading is generally suited to full time traders who have the time to sit before trading terminal for the whole day.
- SWING TRADING – So second category of traders are the swing traders who can hold the stock ranging from a few days to weeks , Swing tarders take delivery of the stock and hold the stock , this type of style is suited for working professionals who don’t have the time to keep sitting in front of a trading screen for the whole day.
- POSITIONAL TRADING – These types of traders like to hold their stocks for more than a few weeks , they are generally short term investors using Technical analysis to profit from the stock market.
Traders usually use Technical Analysis to determine if the stock will rise of fall , Trading uses the Dow Theory principles to determine what may happen to the price of the stock in the furture.
What is investing ?
Investing is when one takes the delivery of the stock and holds on to the investment for atleast 6 months or years , investors hold on to their stocks for years , investing is generally done by determining the worth of the company and analysing if the stock price should higher than current market price or lower , various ratio analysis and financials records are checked to determine if a stock is worth investing in by investors , while trading uses technical analysis to work out buying or sellings startegies investing uses conventional balance sheet alaysis and profitability ratios to determine if CMP ( Current Market Price ) is correct or not.