By Paul Nojin
It never ceases to amaze me how very little the average person knows about investing and trading.
Most people don’t even know the difference between the 2 endeavors.
The average person is under the mistaken impression that trading is short term and investing long term.
It’s crazy that kids are not taught some of the basics in school.
It is mind boggling that even university graduates in finance and economics are typically unaware of the important distinction between investing and trading.
The fact is that trading and investing are entirely different.
For starters, traders cut losses fast and let profits run, where investing is a buy and hold undertaking.
At the heart of the difference is the way that risk is managed.
Traders MUST cut losses fast [because they typically use leverage] so it is imperative that they use stop loss orders to minimize risk.
In stark contrast, investors typically control risk with diversification and allocation.
Too often I get emails from people telling me they are trading shares and using stop loss orders.
The main problem is NOT the use of the stop loss order, it is the fact that it is used with shares.
Shares are NOT an appropriate vehicle for traders.
The reason is that companies make surprise announcements that cause big gaps in the share price, and for those using leverage this equates to massive risk.
In contrast to individual shares, mainstream markets do NOT gap with anywhere near the same level of volatility, which is why traders focus on the overall index rather than individual shares.
If you are a trader you should use stop loss orders and cut losses fast, and focus on currencies, gold, oil, the bond market and the stock market indexes. That is what I offer at KeyLevels.com.
In contrast, longer term investors will be best served using allocation and diversification, and focusing most of their attention on large and stable companies, ideally ASX 100 companies, which is what I offer at The Super Investor with The Top 10.
There is both large and small company coverage at The Super Investor, but The Top 10 is the main foundation of the service, to ensure Members have a responsible, proven and stress free approach to investing in the share market.
Are you registered for our free reports?