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Investment Trading
Investment and Trading
When trading we treat stocks much like a car-dealer buying and selling cars. Traders try to buy low and sell high and don’t necessarily want to know much about the underlying investment they are trading.
By part of this definition, of course, everyone is a trader of sorts – I’ve yet to meet anyone who buys stocks to lose money.
An investment is bought for the long term – to fund retirement for example. Investors are more like car-collectors than dealers. They learn as much as they can about what they’re going to buy and would love to hold their purchases for the long-term. An investor could also be a person who buys a stock because they’re genuinely interested in receiving dividends – more interested than they are in selling the stock for a quick profit.
I personally am more of a trader than investor. I don’t buy a stock for its dividend. I buy it because PEND tells me the fundamentals are strong and TREND tells me there is momentum behind the stock.
And I don’t buy stocks with the idea that I’ll hold them until I retire. I will hold provided momentum – in the form of an upwardly trending chart – remains positive. And that, sometimes, is for several years.
The time-scales of the price-charts I analyze are measured in months or years. I follow weekly stock prices, not daily stock prices. As a result of these choices, I respond only to major changes in price action rather than daily price movements. *
I would like to hold stocks forever – this reduces costs and there’s less work to do – but in practice I always sell when an uptrend breaks. I suppose I could be described as a reluctant trader. I generally hold stocks for many months so, in practice, I am a long-term trader.
If I followed a stock’s price-action minute by minute I would almost certainly be a day-trader – looking to buy and sell on the same day. If I followed a stock’s daily price-action and looked at trends on a scale of a few days or weeks, I would be a short-term trader.
In practice, most people associate trading with short-term buying and selling determined wholly by technical analysis. I operate over longer time-scales and use fundamental analysis, in the form of PEND, in my stock selection methods.
*Caution: It’s important for newcomers to realize that the shorter the trading time-scale, the more likely it is that apparent technical buy and sell signals will be statistical outliers rather than true measures of a trend. This makes short-term trading an exceptionally risky proposition.
