Many people confuse trading with investing. They are not the same. The biggest difference between them is the length of time you hold onto the assets. An investor is more interested in the long-term appreciation of his assets, counting on that historical rise in market equity.
He’s not generally concerned about short-term fluctuations in prices, because he’ll ride them out over the long haul.
An investor relies mostly on Fundamental Analysis, which is the analytical method of predicting long-term prospects of a particular asset. Most investors adopt a “buy and hold” approach to assets, which simply means they buy shares of some company and hold onto them for a long time. This approach can be dangerous, even devastating, in an extremely volatile market such as today’s BSE or NSE Indexs Show.
Let’s consider someone who bought shares of XYZ Company at their peak value of around Rs.650 per share at the beginning of the year 2000. Two years later, those shares are worth Rs.100 each. If that investor had spent Rs. 65,000/-, his net loss would be Rs.55000/- ! I don’t know about you, but losing Fifty Five Thousand Rupees would be a relatively big loss for me.
Many investors suffer such losses regularly, hoping that in five or ten or fifteen years the market will rebound, and they’ll recoup their losses and achieve an overall gain.
What most investors need to remember is this: investing is not about weathering storms with your “beloved” company – it’s about making money.
Traders, on the other hand, are attempting to profit on just those short-term price fluctuations. The amount of time an active trader holds onto an asset is very short: in many cases minutes, or sometimes seconds. If you can catch just two index points on an average day, you can make a comfortable living as an Trader.
To help make their decisions, Traders rely on Technical Analysis, a form of marketing analysis that attempts to predict short-term price fluctuations.
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