Difference between trading and investing
If you are new to the stock market, you may have heard or used both the terms interchangeably. But both of these are different concepts. In investing fundamentals of the company matters the most. While in the trading price of the security has been given paramount importance. There are 4 trading methods used by professional traders such as scalping, intraday, etc. If you wish to learn more about trading join one of the best stock market courses called the Money-making trading course by Tushar Ghone.
There is a huge time difference in trading time duration ranges from 1 minute to 1 month. While in investing, it is from 1 year to generation. Tools that you require for investing are fundamental analysis and technical analysis, trading setup for trading. One prime benefit you get in trading is an opportunity for short selling, which is not possible in investing. Investors who look for 15-20% returns per annum traders can generate that much profit within a month, and it depends on experience.
Methods of stock trading
Scalping Trading Methods
These types of stock trading methods demand that traders should be agile. They should be able to make an entry and exit in trade within a small time frame. You may be thinking that “if these traders stay only for a small period in the trade, then how do they make a profit?”. The answer to this question is that scalpers take profit by minute fluctuations in prices and take advantage of these fluctuations by trading in bulk quantities. They maintain a strict entry and exit strategy. Even a small change in price opposite to their trade can wipe out the entire profit.
The average time duration for which scalpers stay in trades is under 30 minutes. Usually, they take an average of 2-3 trades per day, while scalpers take multiple trades, a much higher number of times than average traders. The reason behind this technique is that scalpers try to take advantage of small price fluctuations and a bulk amount of trades. To make large profits by this technique they need to take multiple trades by capturing oscillations of the market.
- Choose 15 minutes time frame for Nifty analysis and 5 minutes on the chart to take a trade.
- Select those stocks that have shown a minimum of 0.25- 0.75 % moment.
- The average time to stay in a scalping trade is 30 minutes.
- Scalpers can get eight times leverage for trading.
- It is suitable for those traders who do not have the patience to wait for a prolonged time.
- As the average time to stay in trade is less, traders have not to worry about any sudden news or market events that can divert price direction.
- Your win rate will be higher compared to other trading styles.
- If proper risk management is not maintained, then you can incur a huge loss.
- You have to be quick enough to enter and exit trades.
- Your margin should be high, as you will be trading in a bulk amount.
Intraday Trading Methods
It is one of the most common types of stock trading methods followed worldwide by traders. Novice traders, most of the time, begin their trading career with intraday trading. In intraday, they have to square up their trades before closing off the market. The number of average trades taken in these techniques is 2-3 trades per day. If someone trades more than this, it is called overtrading. This is not considered a good habit of trading. Due to the broad reach of internet access and reduction in brokerage cost, lots of people are trying their hand in trading. Many factors should be considered in intraday trading, such as ( Stop loss, Risk reward, money management, emotions, etc.).
The intraday technique can be applied in trading all kinds of securities, Derivatives, commodities, Forex, etc. There is a saying in the market that day trading is not everyone in a certain way it’s true. For trading, you have to be present in front of the screen till the completion or until you square off your trade. Everyone is not that privileged to have that much time to spend in front of the screen due to their office work, traveling, etc. So you can go for intraday if you have sufficient time, or you can go for swing trading. If you want to read more about trading techniques, go through our blog on Intraday trading strategy with an automatic screener.
- Choose 1-hour time frame for Nifty analysis and 5 minutes on the chart to take a trade.
- Select those stocks that have shown a minimum of 0.5- 1 % moment.
- The average time to stay in an intraday trade is till market closing time.
- Intraday traders can get eight times leverage for trading.
- Less capital is required as you get leverage from brokers.
- Traders have not to worry much about any sudden market events as you are in the trade only for a day.
- Can do short selling in the cash segment.
- Knowledge of technical analysis is a must. Without that, you can incur huge losses.
- Have to be present in front of the screen till completion of the trade.
- Leverage can act as a two-edged sword. If the trade went against you, it can wipe out your whole account. So trade with proper risk management.
Swing Trading Methods
In this type of stock trading, traders look forward to staying in trades for a couple of weeks. They do not have to care much about small fluctuations in the daily market. Swing traders use technical analysis tools like a candlestick, RSI, Moving average, etc., for stock selection. Along with the technical analysis, a small amount of fundamental analysis is required.
This is one of the best strategies for those who don’t get regular time to spare in front of the screen. Swing traders try to capture big moments by entering at the start of a trend or by riding the current trend. There is more concept called positional trading it is another variant of a swing trade. The only difference is of time duration here traders plan to hold the position for a couple of months. So along with technical and fundamental analysis study of micro and macroeconomic factors should also be considered.
- Choose a weekly time frame for Nifty analysis and daily or hourly on the chart to take a trade.
- Select those stocks that have shown a minimum of 7- 8 % moment.
- The average time to stay in an intraday trade is 2-3 weeks.
- Swing traders in the cash segment do not get any leverage for trading.
- You have to spend less time in front of the screen watching out your trade.
- Can avoid daily market noise and be able to capture bulk moments.
- Unlike Intraday, Swing trading does not require a lot of screeners for stock selection.
- There is always a risk of any sudden market moment. The reason is you are in the trade for a couple of weeks.
- Technical analysis knowledge is a must with some amount of fundamental analysis.
- Cannot do short selling in the cash segment, can be done in the Futures and options segment.
This trading strategy is another variant of a swing trade. The only difference is of time duration here traders plan to hold the position for a couple of months. So along with technical and fundamental analysis study of micro and macroeconomic factors should also be considered. Here more weightage should be on fundamental concepts and economic factors as the trading period vary from 3-4 months.
- Don’t have to deal with daily market noise.
- Less brokerage
- Do not need to be present in front of a screen all time.
- Leverage will not be accessible
- Trade can get affected by various economic factors.
- Don’t have access to short selling
Advantage of trading over investing
- Good Investors who earn 15-20% returns on an annual basis. Traders are capable of generating such returns within a couple of weeks or months.
- In trading, there is no need to worry much about the financial statements of a company.
- Capital requirement is less in trading due to the advantage of leverage provided by brokers.
- Traders can make profits in both good and bad situations. They can take long calls in an uptrend and short sell in a downtrend.
The disadvantage of trading.
- Heavy brokerage charges
- Traders do not get the benefit of dividends announced by companies quarterly or annual basis.
- In investing, investors do not have to deal with daily market noise like traders do.
Real-life trading blunders and profit made by professionals
1- Jesse Livermore
He was one of the pioneer traders during 1930. During that time, he lost almost $ 2,00,000 on the cotton trade in 1934. The main reason for his losses was impatience and overconfidence. He took trades at the wrong price, as the market went down, he sold out all his positions. But as the market went up again, he did the same thing, buying at high prices, and as the price fell, he couldn’t control his emotions and squared off all the positions. This repetitive wrong trade cost him a large amount of money.
He was the chairman of Soros management fund and one of the most successful traders. His one of the best trades, from which he made $ 1bn in single-day trade. In 1991 when Britain joined the European exchange rate mechanism. Britain was bound to keep the exchange rate of the pound to the German mark. George realized that the pound was overvalued versus the German mark. He bet against the British pond and took a short position, and got a profit of $1bn in currency trade.
Nick Leeson was working at Barings Bank in Singapore. His main task was to maintain the client’s portfolio. Nick started taking an unauthorized trade on forex from bank accounts and made huge profits. But after a certain period when he incurred a loss of 27 million pounds. To hide these losses, he took another trade to recover that loss and made a loss of approximately 827 million pounds and ended up bankrupting the bank.
If you want to avoid these mistakes, join the “Money making option course” by Tushar Ghone. In this, you will get complete guidance on options trading with the study of open interest. This course is for everyone from the novice to experienced traders. All the concepts of Futures and options are covered from basic to advanced level to make you a complete trader. I can assure you that after this you don’t have to take any other course. MMTC provides thorough guidance & live market practical training along with lectures and webinars.