Tuesday, July 15, 2008

Investing vs trading

Everyone always says that the safest way to make money in the stock market is by investing for the long term. I don’t believe it. In fact long term investors might have the disadvantage.

There are a number of reasons why trading can be a safer strategy then investing in the long term.

1. Traders can make money in all markets. Unlike a long term investor who only makes money in bulls market and loses money in a bears market, traders can take advantage of whatever the market does.

2. Strong companies don’t have to go up. People seem to have a false image in their mine that if you own Disney stock and they make a sale your stock goes up. That is not necessarily true. You could buy a stock that makes loads of money with great fundamentals and still lose money. In fact Wal-Mart, Disney, Microsoft, and coke are all stocks that have huge earning but have not done anything except go down a little in the last 10 years.

3. Successful traders base their conclusion off of price, the trends and patterns of it. This is a much better way to grow your money because what you make money off of is ultimately what the stock does not what the company does.

4. The idea of holding onto a stock forever can actually hurt you. I have seen people with a long term prospective ride a $40 stock to a $10 stock because they are in it for the long term. As far as I am considered it not a good idea to hold a stock through a 75% decline in hopes that it might one day go up no matter what your time frame is.

5. Actively trading is a can give you higher returns. Think about it like this, if you are actively trading in the stock market you will be able to learn from your past trades. The more you learn the better a trader you will become. Where as someone who invest in the long term cannot use what they learned from their last trades into their new trades because your last trades lasted 40 years.

For more information about the stock market visit http://www.stocks-simplified.com

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