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Difference between Investing and Trading in the Stock Market

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Many new traders often mistake investing with trading while both have very little in common. Other than buying, selling and order execution, investing and trading could not be further apart. New traders that are experienced in long term investment strategies are shocked once they enter the world of trading for short term profits.

Investing only requires the fundamental aspect of stocks being considered as potential candidates for a long term investment portfolio. By fundamental it is meant the profit and loss, long term prospects and bottom line of the company in which stock is being considered for investment purposes. Trading however, takes an entirely different approach with most of the focus being on the technical side of the stock. By technical, it is meant in terms of how the stock trades within the dynamics of the larger markets.

When we think of technical stock trading the trader should think in terms of charts and chart patterns as well as major and minor support levels at the very least. Sectors that are in favor and out of favor. Daily financial and economic data released by various agencies. Larger market trends. Federal Reserve announcements. Options expiration each month. All of these factors have an impact on the market and very little to do with the fundamentals of an individual stock, which is why there is such a large difference between investing and trading.

Posted on January 30, 2009
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