Day Trading versus Investing

nightmare.jpgThe day trader’s ultimate objective is to trade expensive and volatile stocks on the Stock market sand profit from the small intra-day price movement. The day trader may make many trades in a single day, holding onto stocks for only a few minutes (or hours), and almost never overnight. Day traders are short-term price speculators. They are not investors, and they are not gamblers.

Day trading is however a mentally and psychologically challenging activity and is by no means meant for everyone. Day trading is essentially speculation and day traders essentially only do that: day trading.

Day trading is not investing. The day trader’s time frame of analysis is rather short: one day. Their only intent is to exploit the stock’s intra-day price swings or daily price volatility. Unlike stock investors, day traders do not seek long-term value appreciation.

Stock volatility is generally a rule of the market rather than an exception. Most stock prices move up or down in any given day due to a variety of external factors. Even if the market is relatively calm, there are always stocks that are volatile. Day traders seek to identify a stock that has a trend and then go with that trend. “Trend is a friend” is a common motto among day traders.

Consequently there are plenty of day trading opportunities. It is not common to see a day trader executing many, sometimes as many as 100, trades in a single day. On the other hand, an investor’s time frame is much longer. Investors seek a much larger price movement than earn the desired rate of return. That takes time.

In short, day traders seek to extract an income from intra-day price volatility by trading the stock frequently, while the investors seek a long-term capital appreciation.

The biggest problem though is that as human beings, we seek instant gratification and instant rewards. A lot of us don’t have the patience or foresight for long-term trading.

There are different philosophies on how to play this game, none of which are wrong (unless you go out and buy you’re favorite player just because… that’s just ignorant). I just say to each their own and good luck to all.

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2 Responses

  1. Jag says:

    Hi Robin,

    I think there are tonnes of debates of trading vs investing.

    At the end of the day, like you pointed out, to each his own. There are no one-sized fits all. A lot depends on the individual’s unique profit and risk appetite.

    In fact, among the traders themselves there will be debate between the intra-day traders and traders with a longer time horizon. It will never end!

    Kinda reminds me of technical analysis vs fundamental analysis debate. How I remember those debates in investment forum!

    Haha, I used to play peacemaker between both camps because I’m a believer of marrying both techniques.

    Thanks for this post mate. Brings back some memories for me.

    Cheers,
    Jag

  2. Trader Mom says:

    I think trading is more suited for small time players.

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