Trading And Investing: The Thin-line DifferenceKehinde LAWAL
In practice, most people often confuse the word Trading with Investing. And this one of the major cause of loss faced by Newbies in the global financial market.
Though trading is quite similar to investing, it requires more technical skills and it can be riskier than investing.
When you invest, you’re buying low and selling high within a long duration, usually between 6 Month to 5 Years. Your target here is Price Appreciation i.e the price to significantly increase.
Trading is quite different. In trading, you buy and sell within a short period of time. Your target here is to grow your capital to put into an investment.
While trading, it’s very important to have an entry and exit plan. Also, you should know how to make profit both when prices are rising and when prices are falling.
Basic Requirements for Trading
As I have said earlier, trading requires some skillset and mindset which determines how profitable you can be. Below are important aspects of trading.
A market simply means a variety of system, infrastructure or place where buyers and sellers meet to transact. It is broadly categorized into two; physical and virtual market.
A physical market is the conventional market where we sell physical goods like cloths, shoes, cars, food etc.
The virtual market is a more global market, and it included the sale of virtual goods traded over the internet. Example of this goods are Tokens, Gift Card, Currency etc.
This the quantitative and qualitative assessment of a market. In other words, you’re looking at the Volume and Value of the market. The two major type of Analysis is Fundamental Analysis:( Based on news/economy), and technical Analysis: Based on trends (Price & Volume).
Tradingview.com is a platform for carryout Market Analysis.
Strategies are the method you use in trading. The popular ones are:
- Scalping: when you’re scalp, you buy and sell immediately after making any tangible profit.
- Swinging: Swing trading is the continuous act of buying at the bottom and selling at the top.
Indicators are tools used to predict the direction of a market. They’re much needed to validate your assessment of the market. The major ones I use and recommend are:
- RSI: This the short-form of Relative Strength Index. The tool helps to determine the strength of a trend or movement of a market.
- MACD: The short-form for Moving Averages Convergence and Divergence. It helps to determine whether a market is overbought or oversold.
- BB: Shortened for Bolinger Bands, this indicator can help determine the volatility and direction of the market.
I hope have been able to explain the major difference between trading and investing. Your takeaway should be that investment is much more easier than trading.
However, trading can be fun and very profitable if you’ve the required skillset and mindset. If you don’t know what you’re doing, you’re at the verge of loosing part or all of your capital.
Are you interested in being an expert trader or investor? Click here to read my article on how to profitabley trade and invest in cryptocurrency.
Finally, feel free to share your trading skills and experience with us using the comment box below.