There are various trading styles, each of which has its own advantages and disadvantages. The two major ones are traders vs. investors. Which are you, and what does it mean about your approach in the market? We answer these questions and more in episode 15 of the Possible Promise Podcast.
- Markets were mixed today as Congress is still indecisive on a stimulus bill.
- The S&P ended 2 points in the green, up +0.07%; the Dow ended up 46 points or +0.17%; and the NASDAQ ended down 128 points or -1.1%.
[04:09] – Week in Review
- Initial jobless claims: 1.19M V 1.40ME; Continuing Claims: 16.1M V 16.90ME
- July Change in Nonfarm Payrolls: +1.76M V +1.48ME
- July Unemployment Rate: 10.2% V 10.6%E
- This week, the S&P gained 80 points or +2.5%; the Dow gained 1,005 points or +3.8%; and the NASDAQ gained 234 points or +2.1%. Volatility contracted by -9.2%.
- Had wins on MRK, ET, AMC and others
- Had losses on SPY
[16:18] – Investors vs. Traders: Which Are You?
- There are two general styles of investing: investing and trading.
- Investing is long-term, in the timeframe of years; while trading is short-term, only holding for days, weeks, or maybe a month or two.
- The first type of investing is in index tracking ETFs or index funds. You choose an allocation and maybe check on your portfolio once per quarter or so, but otherwise you don’t need to worry about it.
- There’s also investing in individual stocks, where you select certain stocks based on fundamentals, company outlook, etc, and invest in them for a period of 3-5 years or more.
- Individual stocks take far more work to select good companies, but you have a chance to outperform the broader market.
- The upside to investing is that the market always goes up, as do companies as long as you have chosen them well.
- The market tends to increase about 10% or so per year on average.
- It’s a balance: you are guaranteed to make profit over time, but you might be giving up some potential profits by not being more active.
- Trading is more short-term, sometimes even buying and selling in a single day (day trading), or a few days or weeks (swing trading).
- The upside is that you have the chance of making far more profit.
- Additionally, if you enjoy trading, then it’s exhilarating. You can’t keep a true trader away from the market.
- A sign of a true trader is that no matter how many times they fall, they get back up and get into the market again.
- The downside is that it takes a lot more work, though for someone who enjoys trading, this is not a true downside.
- Another downside is the additional risk. Unless you formulate a workable risk management strategy, your chances of failure are far higher.
- There is no room for emotion in trading: your decisions must be mechanical. You must always stick to your strategy.
- These approaches are not mutually exclusive. You might use a bit of both depending on your individual goals.
- There is no right or wrong: everyone’s investing style is their own and you must come up with your own approach to the market that works for you.
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