Trading versus investing

Trading is more short term focused while investing is focussed on the longer term horizon. Particularly day trading requires a lot attention and a trader will be more or less glued to the screen. There is a constant flow of news and data that impact prices. Likewise a trader must pay attention to important technical price levels.  However, following various markets gives the trader good knowledge about certain relationships and price patterns. Often certain patterns repeat themselves during the day. A weaker dollar typically results in a stronger stock market. A short term investor studies his daily profit and loss statement carefully to see if there is anything he can improve with his trading strategy.

Conversely an investor typically considers most day-to-day movements as noise. He compares the market with a business owner that is manic-depressive. If he is in a good mood he wants to buy some more shares of the business he owns. On the other hand if he is a bad mood, he wants to sell some of his shares. For an investor the long term fundamentals are more important. He analyzes a company’s balance sheet and computes the intrinsic value of its stock. Therefore if the share price is lower than his computed intrinsic value he buys the share. If the share is overvalued he sells his holdings. An investor looks on his return infrequently and is more concerned with the long-term returns than the daily fluctuations.

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