Trading and investing have many similarities, but also some subtle and nuanced differences.
The most important distinction between the two is the timeframe typically used for each. An investor’s timeline is in general far longer than a trader’s. The trader is really more in tune to the day-to-day market action. That’s not to say an investor cares little about the daily market movements. Big surges in volatility, which tend to be temporary, offer good chances for an investor to scoop up bargains.
But is trading better or is investing better for making money? It all depends on your goals. An investor may see her returns more in line with the market, a very slow and steady progression toward wealth. A good long-term investor can be positioned well to build wealth in the stock market. Over many years an investor with a steady diet of contributions to a retirement account or other fund can find herself sitting on a large pile at retirement age. It’s been proven over time to be the best method.
Yet, let’s not put down a trader’s approach just yet. Traders are keenly aware of the current happenings around markets and are wise to embrace volatility. Investors wait for moments to dive in, while traders take advantage of these occurrences with regularity, often daily or weekly. Investors will use big moves in volatility to add positions, while traders might buy or sell constantly during bouts of volatility.
Over time, a trader will have far more transactions than an investor will have, and overall results are likely to be quite different. But traders can use volatile markets to gain the alpha needed to beat the indexes, especially when stock picking is good.
In the end, trading this market requires the daily attention to movement, detail, and emotions. Investors are looking for the best opportunity to gather more shares of companies that were pitched to the side of the road. Both approaches can win over time.