THE DIFFERENCE BETWEEN TRADING AND STOCK INVESTMENT THAT IS OFTEN MISUNDERSTOOD
Learn the fundamental differences between trading and investing, including goals, strategies, and common mistakes beginners make when entering
When sitting in coffee shops, we often hear novice investors talking about trading and investing. They use these terms interchangeably, as if they were conjoined twins.
However, behind the transactional activity of buying or selling shares, there are fundamental differences that novice investors often misunderstand.
So what is the fundamental difference between these two terms ?
Trading focuses on short-term price movements.
Stock trading generally focuses on short-term price movements. A trader always tries to capitalize on price fluctuations in the market, which fluctuate minute by minute.
Therefore, we will see the activities of this type of trader whose eyes are solely focused on monitoring price fluctuations.
Don't try to engage them in unimportant discussions, as they will likely respond slowly or even get no response at all.
Investing focuses on long-term value.
Meanwhile, stock investment focuses more on the long-term growth in the value of the company holding the shares.
A true investor is less affected by daily stock price movements. They focus more on the company's business performance, future business prospects, and its ability to generate consistent profits.
These different goals automatically mean that the strategies they employ will also differ.
In trading, traders typically rely on technical analysis and market momentum. Meanwhile, in investing, investors tend to use fundamental analysis.
Both analyses are quite valid but require different approaches depending on their respective goals.
Mistakes in Mixing Two Approaches
A common mistake among novice investors and traders is trying to trade stocks using two analyses simultaneously.
For example, they buy stocks for the long term but panic and sell when the price drops even a few points. As a result, their strategy is chaotic, inconsistent, and ultimately less than optimal.
Choosing the Right Approach
As I mentioned earlier, both approaches have their own advantages and disadvantages. Therefore, use both approaches appropriately according to your desired goals.
There is no one approach that is better than the other; there is only one that best suits your individual circumstances.
With sufficient knowledge, an investor or trader can avoid panic and prolonged stress. They can carry out activities in the stock market more comfortably and in a focused manner.
Selecting the right strategy not only helps reduce emotional stress during transactions but also creates a more comfortable and focused investment process.
Therefore, it is important for beginner investors, especially those with limited capital, to understand realistic and easy to implement stock investment strategies from the start.
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ECONOMIC AND BUSINESS