Trading to Invest
Creating wealth in the market takes two forms. The first, trading on short-term movements to yield high profit (day trading), we’ll discuss in a moment. The second, investing money based on long-term predictions of appreciation, is known as “long-term investing”.
Long-term investing is predicated on the basic principle that, in the long-run, market values go up. Even if a stock has periods of under-performance, the general trend is upward, allowing for the creation of wealth over a great deal of time. This type of investing is often viewed as “safe”, due to the reliance on stable stocks and patient planning, but that doesn’t mean it comes without challenges.
In particular, long-term investing is a low risk endeavor. While this sounds attractive, the lower the risk involved in an investment, the lower the potential for profit. This means that every dollar you put into an investment has a much lower potential to create wealth. For this reason, many see the strategy as a way to effectively earn interest at a higher rate than a traditional savings account, storing money instead of generating it.
Another problem with this strategy lies in its core assumption that markets always rise. Because wealth creation in long-term investing depends on upward trends, it’s effectively impossible to make money when the markets are in a down-turn. Furthermore, it may be difficult, if not impossible, to tell when the markets will rebound at all, which can significantly delay returns.
Playing the Slots
On the plus side, long-term investing is better than gambling. But these two are not often compared. The question on the minds of most who consider day trading is whether or not the practice is equal to playing craps at the local casino.
This perception is not without reason, even if it is flawed. Markets have complicated movements, and it takes sophisticated analytics to predict them. To the uninitiated, the jagged peaks and valleys of price graphs may seem like gibberish, imparting the perception of luck.
But the differences are manifold. To begin with, outside of poker, you cannot teach yourself to “gamble better”. If the definition of gambling is limited to putting money into a situation beyond your control, then nothing you do, say, or think will change the potentiality of the outcome. Next, gambling is a haphazard affair. Individuals have hit jackpots on extremely rare occasions, but no amount of planning or strategy enabled that occurrence. Finally, and most importantly, gambling is an escape. People visit casinos on vacation with a few extra dollars to experience the thrill of pure chance. Day traders, on the other hand, have a serious goal in mind.
Building Wealth
So what is the difference between day trading and the two options listed here? Calculated and focused creation of great wealth.
As mentioned, day traders, unlike gamblers, have a goal in mind: profit. Those who try their hand at the profession with an emotional thrill in mind are incalculably more likely to fall down a hole than ride a financial high. Good traders require discipline and strategy, not thrill-seeking abandon.
In comparison to long-term investing, the benefits of day trading are myriad. Short positions in volatile conditions are high risk, meaning the potential for profit is much higher. In addition, the inherent nature of short-term trading allows savvy professionals to make a profit even when the markets are performing poorly. Stocks never run continuously downward, except in extreme and identifiable times of crisis. Instead, prices oscillate up and down, and those brief up-ticks, if entered and exited at the right times, can create wealth.
And these characteristics are what fundamentally set day trading apart from gambling and long-term investing. The potential for wealth is higher, the effort is more calculated, and your intelligence and skills will allow you to make money regardless of the market circumstances. For many, the endeavor is nothing more than a slot machine. But for successful day traders, it’s a sensible, enjoyable way to create very real wealth. The real benefit to day trading vs longterm investing is the leverage of skills & money. If your a successful value investor and get 20% away you will be on T.v. and a rock star. But when your starting out and you have only 5-10 thousand dollars 20% returns wont get you where you need to go. It wont help you build an income. Successful daytraders due to the frequencey of their trades can turn their account over numerous times just in 1 single day. They keep taking 3-10% gains thousands of times a year rather then just holding a stock longterm and taking the overal percentage. A stock like TSLA which is up many multiples in the last 12 months a great daytrader will ride that trend on a daily basis trading in and out of that stock to capture all the volatility in it. Now rather then a 20-30% gain on your investment you have made 10x that as your actively playing the stock.
Thats where a class like our 60 day Bootcamp can get you started on your trading goals. This course is designed to teach from A to Z our method. It is a handson course where you have access to multiple instructors where you get daily feedback and work to help you build your skillset to become a trader. If you ever have any questions on this email me maribeth@bullson.ws
