Trader psychology VS investor psychology

The equity market is a great playing field for wealth creation. Trading and investing are two key areas through which you can secure more wealth for your future. But you must remember that trading and investing are quite different when it comes to earning profit in the financial market. Let’s try to understand this with an example. 

Suppose two people have been given a bag of seeds. Person X trades the seeds the very next day and earns a profit whereas person Y, holds on and sows the seeds, harvests the yield, and continues this for years until he/she/they have enough volume to trade. When that volume is traded, the profit is much more than what person X earned. In the financial market, there are some defining aspects of trade and investment that work similarly. We’ve discussed a few below:  

Period 

Generally speaking, trading refers to the act of holding stocks for a short term. It could mean holding them for a week, a day, or perhaps even a couple of hours. When you trade stocks for a short term, you hold them only until their prices peak whereas when you invest for a long term, you buy and hold for a considerable period. The advantage of long-term investment is that short-term market fluctuations do not impact them as such.  

Capital Growth 

For traders, stock prices are of utmost importance since a lot is riding on the price movements. Profit for traders comes from rising stock prices but investors seek wealth through interests and dividends. These can be accumulated over the years by holding onto good stocks for a long period.  

Risk

Whether you’re trading or investing, in both cases you are risking a set amount of capital. Though trading forex involves more risk and a greater potential for higher profits in the short term, investing can help you lower the risk even if the short-term returns aren’t plenty. Having said that, you must remember that when you invest for a longer period, your investment isn’t impacted by daily fluctuations and when cash in the consolidated returns after a said period, your profit can be much higher. 

Art Vs. Skill 

Trading is a skill but the investment is an art.  

In the financial market, traders are skilled in timing the market and learning the trends that lead to greater profits within a specific time period. Market psychology plays a huge role in trading.  

Read must: Top 6 Most Tradable Currency Pairs

Investing on the other hand demands proper analysis of the stocks and the market on the investors’ part in order to help in wealth creation. Investments require a business-like mindset where you’re willing to look at long-term goals without getting affected by how your money is responding to short-term losses. 

Winners 

Traders buy stock for the short term. And they sell fast to hit the higher profits in the market. Missing the right time may lead to loss. 

Traders buy a stock for the short term and sell it as soon as it peaks in order to earn a profit. Bad timing can often lead to losses, in this case, therefore as a trader you should observe company performances to avoid poor returns and losses. 

Investors aren’t the ones who swing with the trend but are rather keen on the possible value and growth of stocks they put their money on. Patience and an eye on stock growth are key to understanding when the stock has peaked and in the end, whoever reaches their financial goal is the one at the finish line.