Do you know what is the most debated question in the financial world? It’s the comparison between trading and investing. and which is better. Most of the beginners entering investing world always confuse which style to choose. Let us give you a detailed explanation of these two and at the end, we will decide on which is better.
Let’s talk about trading first. What is TRADING?
Trading is a method to profit from short-term price movements. A trader always anticipates whether the price of a stock will go up or down in the short run.
So how do traders anticipate these price movements? They are not merely guessing it. Traders use TECHNICAL ANALYSIS to anticipate the price movements. Technical analysis is the technique to analyze price using historical patterns. They believe that history will repeat itself and identifies patterns in which it repeats. They usually use charts to analyze and doesn’t care about the fundamentals of a company.
Traders also use technical indicators to enter and exit a stock. Some of the common technical indicators are moving average, MACD and RSI.
By now you should have understood what trading is. and the techniques traders use.
Let’s go to the second part now. What is INVESTING?
Investing is a method to profit from capital appreciation and dividends. If you buy a stock at ten dollars and anticipates it will be more valuable in three years, you are actually investing. How do investors make a call on buying a particular share?
Investors use FUNDAMENTAL ANALYSIS in determining whether to buy or sell a share. An investor will analyze the fundamentals and business prospects of a company and decides what a company will be worth in the future. After analysis, if they think that a particular company will be more valuable in the future, they will acquire shares of that company.
Now let’s try to answer the most debated question. Which is better?
Well, It depends on you. Both strategies work if given enough time and effort. If you are a person who gets pumped up by volatile ups and downs of the market, then trading is the right strategy for you. Or if you are a person who’s good at analyzing business, go for investing. Both has its own advantages and disadvantages. But with the right mindset and hard work, both can reward you pretty well