Many told me that trading is just a gambling and Investing is the best & safest way to create wealth !
Hay Ravi,
I think you every trader should start Investing in the markets first, then try trading if it work’s out…
Hi Ravi,
Both make money, it all depends on how you use these products and trade. If any of the above methods didn’t make money, there would be no one following it.
My belief is creation of ‘wealth’ is a gradual process and hence can be achieved by way of Investing, but that’s just my personal view.
If you are looking for what is going to suit you, you have to experience it both and then adapt accordingly. Do it with a sum of money which if you lose isn’t going to affect your livelihood. Good luck !
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The answer to this is tricky. You can make money by either investing or trading. However the approach and mindset is different.
Since I've adopted both these approaches to market at some point or the other, I can share some of my learnings and observations. Needless to say that the following points are not etched in stone, they may vary from person to person based on what he or she has experienced....
Developing a midset for Trading
1) Set realistic return expectation - Don't be under the impression you can double your money every month.
2) Think of a time frame to suit you temperament - It could be anything from ultra short term like few minutes to relatively longer periods like a day or few. When you set time frame remember this - Time is the only luxury market give you, it is the only way you can cleanse your trading sins. So make sure you stick to a time frame that fits well in the general scheme of things
3) Develop a Strategy - A strategy could be anything. You can put any junk in it as long as it works. Again, it is important to remember all trading strategies have a shelf life. They all have an expiry, so know well in advance when your strategy is going to buckle
4) Don't become a risk junkie - When trading using leverage is a great option, but don't over do it. Know when to say enough. Remember when you use excess leverage you will behave as if you eat like a chicken but shit like an elephant.
5) Leverage Technology - Trading is getting more and more challenging. At some point, one has to bow down to technology to develop new stratergies. So go ahead and embrace technology. My guess is that the new age trader will be 25% Techie + 25% Finance + 50% Lucky.
6) Stay humble - If you develop a strategy that is making you money give yourself 20% credit and attribute the rest to luck.
7) Don't be under capitalized - If you don't have enough money to trade, you cant trade. Simple.
Developing a mindset for Investing
1) Learn Fundamentals - You cannot invest if you cannot read and understand basic business fundamentals. People who invest and lose money are those that don't understand the basic business essentials.
2) Leverage Time - Time is your best friend when investing. When you invest in business you need to give time for the business to evolve. Don't pay too much attention to quarterly numbers because business don't evolve on a QoQ basis.
3) Learn to connect the dots - Sometimes great investment ideas are generated by connecting simple but discrete corporate events. There are plenty that happen on a daily basis, you just need to develop a sense for it
4) Have patience - Many a times passive investors are looked down simply because they just invest and watch. But honestly thats all there is to it. There is nothing much you can do. End of the day, it does not matter what you do and how you do - what matters is how much returns you have generated.
5) Learn a bit of valuations - You can identify a great business, but if you dont buy it at the right price you will have trouble. Know what is the right price to pay to right business. By understanding valuations, you can develop a sense for the right price
6) Think in terms of a portfolio - Over time you need to build a portfolio of good business. Once your portfolio is set, think of returns from the portfolio perspective and not individual stock perspective.
7) Book Profits - If you are holding a stock for a long time in your portfolio and it has generated great returns then you may want to consider booking profits. Having a stock for too long a period usually leads to developing a bond with it. Don't let this happen. A stock should not take your spouses' place in life :-)
So good luck and do what you think is right. Godspeed.
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Trading is a bird in the hand.
Investing is nothing but 2 birds but sleeping in the coop.
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