Stock investing vs
stock trading

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Don't confuse stock market trading with stock investing

Long ago, I thought that investing in stocks, stock trading and being an investor were the same.

Now look at my views.

Investing in stocks: Stocks for the long term

The stock market chart shown below identifies the type of stock price appreciation that an investor would be happy with. Stock investors make money in uptrending markets. Generally they would not short a stock and they would generally lose profits in a downturn.

Chart courtesy of

uptrending stock market chart

The most common example of someone who invests in a stock is Warren Buffet. He has the ability to identify great companies, which will increase in value over a very long period of time. Properly done, investing in a stock is a long-term (years to decades) process. Sometimes new information may become available months after your purchase, which would change your outlook resulting in a sale.

Identifying a fundamental change in the economy and riding this change is one way for an investor to do well in the stock market. For instance, looking at the long term gold price you may be able to identify that around June 2002 there was a long term change taking place in the gold market. A stock investor could take this information and buy a number of mining related stocks and ride the cycle.

Read "The Warren Buffett Way" by Robert G. Hagstrom for more detailed information on stock investing.

Stock Trading: Stocks for the short term

Trading stocks is a short-term event ranging from seconds to months depending on the type of trader you are. Some trades may extend to years if you get lucky enough to ride a long-term trend.

Stock traders would love to find a long term play like PTR shown above however, they should be perfectly happy to trade a stock like FDRY shown below. There are at least 6 to 10 trading opportunities presented in the 3-year chart of FDRY that would keep a stock trader happy. Can you find them?

stock chart for stock traders

Chart courtesy of

Stock traders can buy long or sell short, trade patterns or trendline breakouts. You do not need to know anything about the company you are trading. Basically, all you need to know is if the chart you are trading presents a good probability of success. Other than that you need to know when to get out if you are wrong.

Investor: A person who invests in anything for cash flow and/or capital appreciation

While investors play the stock market, they may also participate in a number of other alternate investment strategies. Some of these alternate investments could be businesses, real estate, antiques, cars and any other collectibles. A true investor does not care what vehicle they use to obtain wealth.

Stock investing and stock trading are easy to do. Just about anyone can open up an account, deposit a few thousand dollars and start to trade. Getting in and out of stocks is easy. You can do it yourself online or call up your broker.

But what about other investment vehicles?

For a good discussion on alternate investment ideas, read Robert Kiyosaki's "Guide to Investing". According to Kiyosaki anyone can do these types of investments but you have to be a better investor in order to do them.

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Monte Carlo Simulator
for Traders
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