There is a difference between short-term trading and long-term investing. When you invest in a company, you hope to reap the profits. The company needs to build wealth over a longer period. You hope the company will be worth a lot more in the future, even through ups and downs. The theory is that as the company grows, so will its overall value and, in turn, your investment in it. This requires some forecasting and usually a buy-and-hold strategy, as it will take some time for the company to grow.
Key Characteristics of Long-Term Investing:
Time Horizon: Years or decades
Risk Tolerance: Moderate to low
Focus: Fundamental analysis of companies
Strategy: Buy-and-hold
Goal: Long-term wealth accumulation
Trading involves short-term buying and selling of a security. You hope to take advantage of short-term gains. Your focus is on trending stocks. You prefer to get in and out of positions relatively quickly if the trend changes. You hope to beat the ‘buy-and-hold’ strategy, which is usually implemented with longer-term investing. You are less concerned about the long-term prognosis of the company.
Key Characteristics of Short-Term Trading:
Time Horizon: Days, weeks, or months
Risk Tolerance: High
Focus: Technical analysis of charts and patterns
Strategy: Active trading
Goal: Quick profits
You can see how a great short-term trading opportunity may be different from a long-term investment opportunity.
Again, a trader can be selling while an investor could be buying.
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