Do You Confuse Trading With Investing?

Trading and investing are often mistaken for the same thing when they are actually very different disciplines for making money.

The first thing to know about investing is that it is usually for a longer term with the intention of taking profit via dividends or selling the stock later when it has appreciated considerably in value. That is a well-known and common practice.

Trading is purchasing stocks (or Euros or Options or...?) with the idea of selling it for a capital gain; usually in a much shorter time frame than an investor would do. It is possible to trade down to the minute or second but most trades are for several minutes to less than a day; Hence the term "Day Trader". It is not uncommon for a day trader to make several small trades throughout the day, often in opposite directions of previous trades. They are commonly called "Scalpers".

Both of these approaches are legitimate ways to make money and each has its detractors and proponents. As with most things financial it is important to have a system and a plan. Without a system, investing and trading is simply gambling. There is no shortage of systems out there and my advice is to find one that you understand. Trying to use a "black box" type robot or automatic system is a very easy way to lose a lot of money quickly. Remember that the goal is to make money. If you can't understand the system you are using then you are setting yourself up for failure.

The next important factor is to ensure you have a plan. Again, a simple plan that you know and understand is the best approach. Even as a trader the long term goal is to minimize your losses. If you trade at a 80-95% success rate, you are still wrong 5-20% of the time. This is where the plan comes into play, the worst thing one can do is hang onto a bad trade and "hope" it will turn around. Hope is not a plan. Selling when you are 10% down is. With a good plan in place, when things go against you, it is easy to get out of a bad trade because you are following your plan. You take emotion out of it, you will minimize your loses, and live to trade another day with your account and confidence firmly in place.

In conclusion, decide what you are comfortable doing be it trading or investing, and then come up with a system and a plan to make it happen.