Updated: June 26, 2022
The stock market is a battlefield. It’s a war between bears and bulls; between technical analysts and fundamental analysts; between traders and investors — there are so many sides fighting that it’s easy to get caught in a crossfire.
When a bullet hits you while you’re out there, it will be hard to tell which side made the shot. And as you watch yourself bleed red, a hundred regrets will begin to spill out of your mind, along with the thousands of cash slowly flowing out of your pocket.
How do people lose money in the stock market? They gear up and go into war without knowing which side they are playing for. They walk aimlessly around the battlefield and just shoot at whatever’s moving, hoping for a kill, which rarely ever happens.
Trader or Investor?
There are two basic types of people in the stock market — traders and investors.
Traders are those who buy shares, and then sell them after a few days, a few weeks, or a few months. They’re in it for the active income. Meanwhile, investors are those who buy shares, and then sell them after several years. They’re in it for passive growth.
Before you go into the stock market, you have to choose who you will be because everything else will depend on this decision.
Are you looking for extra income? Do you have the time to monitor prices every day? Then you can be a stock market trader.
But if you’re simply hoping to grow your money passively because you’re busy with your career or running your own business, then you should be a stock market investor.
Stock Market Strategies
The number one reason why you need to choose between trading and investing is that there are completely different strategies for each type.
Traders
Because they are in it for the short-term, the company’s P/E ratio is an important part of their fundamental analysis. Additionally, they’re always looking at the daily charts and hoping to see bullish candlestick patterns in the price action. Moving average crossover is a common strategy that stock market traders use.
Investors
Because they are in it for the long-term, their fundamental analysis considers more the growth potential of the company that they plan to buy. And they will not bother looking at the daily charts because what matters to them is the uptrend on the annual charts. Peso cost averaging is a good example of an investing strategy for the stock market.
Choosing Which Stocks To Buy
Another reason why you need to decide if you want to trade or invest is that this will dictate which companies you should study and eventually buy.
Traders
Traders often analyze speculative stocks because they exhibit the highest gains in a short amount of time. One positive news about the company and the stock price could increase by as much as 50% within the day. However, these relatively unknown companies don’t have a clear and stable future, that’s why investors avoid them.
Investors
Investors choose blue-chip companies because they have a national reputation for quality, reliability, and the ability to operate profitably in good times and bad. Being an industry leader gives these companies a higher potential to grow in the long term.
Conflicting Actions
Nickel Asia Corp. (NIKL) is a speculative stock and a company that’s usually on the watchlist of stock market traders. But believe it or not, I’ve met someone who did peso cost averaging on this. He eventually sold at a loss when he couldn’t take the bleeding anymore.
Doing an investing strategy on a company meant for trading is a guarantee of losing money in the stock market. Alternatively, you cannot buy a speculative stock hoping to trade for profits, and then decide to just hold it for the long-term when the price goes down.
Back in 2014, Jollibee (JFC) had logistics issues and its stock price dropped. A friend asked if he should sell his shares and I said no because that’s not a long-term problem for the company. He didn’t listen and sold his shares at P180. As of writing, JFC shares are at P240. He didn’t lose money, but he regrets selling.
Some people apply trading strategies to blue-chip companies. While there’s nothing wrong with that, they are however missing out on more profitable trades. Since they’re timing the market anyway, then they might as well ride the dark horses and just leave the slow and steady thoroughbreds to the investors.
Trading vs Investing
So which is better, trading or investing? The answer is neither. Each one has its pros and cons, and in the end — both can be profitable.
Moreover, you don’t really have to choose because you can do both. Have an account dedicated to long-term investing, and another one for short-term trading.
Just manage each account appropriately and you’ll enjoy the best of both worlds. But if you must choose only one, then it all depends on you. This simple test can help you decide.
Be careful what you study
There are many groups, individuals, books, and seminars that teach about the stock market. Be careful where you learn because some of them are misleading.
I’ve seen one who promises to teach you how to invest in the stock market and yet the lessons are all about technical analysis for stock trading.
What’s worse is this Facebook group that I stumbled upon, which was telling people to invest in speculative stocks.
These may just be semantics but it can get very confusing and conflicting for people who are just starting to discover the stock market.
Remember that it all starts with understanding how the stock market works, then deciding which one you want to be — an investor or a trader, so you can learn the right skills and the proper strategies to be successful and make money in the stock market.
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Thank you, this is very helpful!
I like that one. Both trading and investing can be profitable… but mostly only if you know what you’re doing AND you’ve learned from good mentors/books/lessons.
I agree with your last point too (“be careful what you study”). I’m personally against people telling you what you should do with your money (buy this stock and sell that) since if you listen, you don’t get empowered – you get used.
It’s best to find the method you’d be comfortable using to make money in the market.
Can i invest in stock market without bank account? I don’t have bank account yet because I’m here in abroad but I want to start investing now.
@maeh – Some stock brokers don’t require a bank account. However, most will require you to be in their office physically to open an account. It’s a policy to avoid fictitious accounts / money laundering. My tip is to just save the money now and invest it when you come home. Otherwise, you can ask your family to open an account for you.
[…] Being clear of what you’re doing is important because investing and trading require different strategies for success. Apply the wrong strategy and you will lose money in the stock market. […]