The Difference between Stock Investing and Stock Trading

Newcomers to the stock market will often confuse stock trading with stock investing, and it’s important that you understand the difference before beginning to trade. When investors buy shares, they do so in order to gain dividends and make capital gains. Stock Traders, however, focus their efforts on making profits in the short-term. In stock trading, the emphasis is on technical analysis—price movements—and not on the fundamentals of a company. Stock trading has its own set of techniques, some of which we will discuss in this article.

How to Trade Stocks

Learn How to Read Trading Charts: The first thing you should do before beginning to trade stocks is to learn how to read the three most popular trading charts: line, bar, and candlestick. You’ll find a slew of online sources that will teach you how to read and understand charts, and the better trading brokerages will usually offer an educational section on their website in which you’ll find a section on chart reading. By learning how to read trading charts, you’ll be able to identify entry points, bid prices, and ask prices. Even if you’re completely new to stock trading . you’ll have no problem learning how to read and understand trading charts.

Open a Demo Account: In stock trading, there’s no substitute for practice. Before choosing your trading brokerage, make sure that it offers a free demo account. That way, you’ll be able to learn the basics of online stock trading and, just as important, the ins and outs of your brokerage’s trading platform. Opening a demo account with several brokerages is also an excellent way to compare trading platforms .

Scale into Your Trading Positions: Stock Traders will often “scale into” a position—that is, buy in increments. Buying in increments will enable you to minimize your risk and seize lower prices. Before scaling into a position, be sure to decide exactly how much money you will place in the trade.

Learn How to Swing Trade: Many investors abandon traditional “buy and hold” stock investing in favor of stock trading because the latter is usually short-term. Day trading, however, requires some experience, and new Traders are well advised to begin with what’s called “swing trading.” In “swing trading,” a trade is typically held for a few days. Starting off with swing trades will allow you to master the gyrations and currents of the market, after which you will be prepared for short-term day trading.