Sunday, 20 May 2018

Short term Investor vs Long term Investor vs Trader vs Investor

For an employed person the choice to be made is between Short term investment or long term investment IN STOCK MARKET and trading is not his cup of tea.

 First of all you have to decide whether you are a trader or investor.If you can find time during market hours (say morning 9  AM to 3.30 PM on week days) to pay attention to trade and you are ready to risk the capital invested you can consider trading as a choice.If you are employed or engaged in some serious business which needs personal attention you have to strictly stay away from day trading.If you try to do a part time job of day trading there is every possibility that you will end up messing up both trading and your job. Trading needs quick decision making and action depending on the minute by minute developments in market .If you cannot find time for concentrating in the market forget about day trading or market will force you to quite sooner or later with heavy losses.

Short term Investor

If you have a Govt/ private job or doing own business and want to generate some additional income in short term  you can select short term investment say 10-90 days in stocks.You have to select fundamentally solid stocks for making short term investment and use some technical analysis also to find the technical break outs or supports for identifying the buying and selling such stocks.

Swing trading method for short term investing is the method most effectively used without much risks by many short term investors globally.Though swing trading can be used for buying/selling and holding for few days to few weeks we can use it very effectively if use this technique for buying stocks during technical break outs or at supports and hold stocks for short term. If  you are not taking any leverage it will reduce your risks as this method helps you to keep your pressure minimum even during extreme volatility.Applying swing trading to fundamentally solid stocks can be a good method to generate regular profit with minimum risks.

Long term investor

If you are planning to build wealth over a period of 5 to 10 years long term investment is suitable for you.In this method you select 5 to 10 stocks and invest in these stocks and hold them for long term ignoring the short term fluctuations.Long term investing also has the tax advantage as profit from stocks sold after a holding period of 1 year is subject to 0% tax rate.

Investing – The Decision-Making Process

When an investor is considering an investment in a stock, he/she will generally begin by researching the underlying company, looking at their past and projected financial performance to try and determine the growth prospects of the stock in the medium-long term. The investor will generally disregard the stock charts, as these are reflections of short-term volatility, and are more useful to technical traders. Whereas the trader may be influenced to purchase a stock simply because of a positive news article, the investor conducts extensive company/macroeconomic research over weeks to get a good understanding of the company, its operating environment and growth prospects; because he/she intends to hold the stock for a much longer period of time than the trader.

Conclusion

Despite the terms often being used interchangeably, trading and investing are entirely different methods of generating profit from financial markets, and the choice of which strategy to use depends on personal beliefs, financial goals and analytical methods. Investors tend to focus on the long-term growth of their asset base, while traders prefer to generate as much cash flow in the short-term as possible. Before setting out on your investing journey, you must define which type of trader/investor you are, as there are many different ways to earn a living through financial markets.

If you want to generate short term profit without taking undue risks the best method is to select “SWING method of short term investment” .In this method do not complicate things with borrowed funds or leverage provided by brokers. Taking positions for Swing trading in futures should also be avoided.Just invest your own fund and be ready to hold a swing position for few months in case of an unexpected event like demonetization. In short, for an employed person the choice to be made is between Short term investment or long term investment and trading is not his cup of tea.

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