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Today we are going to discuss a divisive topic! Indeed, we have all already heard or read an anecdote about a trader who lets his losing position run, because it’s now for the “long run”!
Yes, being a trader is not something you learn overnight, and it’s very different from investing. This is exactly what we will explore in today’s article, let’s go!
Trading vs Investing
What is Trading? I’m sure most of you already know it, but for the others, it’s about speculating on the rise or fall of an asset in the more or less short term. In the collective imagination, a trader is very often someone who speculates in the short term. We saw this in the movies or in the press during the 2008 crisis.
Although the difference between trading and investment concerns the time horizon, which is generally longer for investment, it would be far too simplistic to equate short-term trading with short-term investment.
The different types of trader
There are indeed several types of traders according to their preferred time horizon. First of all, we have the swing trader, which uses rather long time horizons such as 4 hours or daily. The use of longer time horizons is easier to start trading because the signals generated on them will generally be more relevant.
Indeed, on small time horizons such as 5min or 1min, we will be confronted with a colossal amount of false signals, also known as “noise”, sometimes intended to mislead the novice trader. Traders who use such short time horizons are called scalpers, and this is a discipline reserved for the most seasoned amongst us, traders. In short, scalping is a trading style that profits off small price changes. The accumulation of these small profits along the way could become substantial over time. Similarly, one large loss could eliminate the small gains that the trader worked hard to accumulate.
In between these two extremes we find the Day-Trader, which as the name suggests, will open a trade and close it in the same day using time horizons like 5min, 15min or 1 hour.
Different types of trading
There are as many types of trading as there are traders. Okay, it’s a bit of an exaggeration but there are a lot of methods or strategies that allow us to open a trade.
Some traders will prefer fundamental analysis, which can be balance sheet analysis as well as the evaluation of the fair value of a company in the case of equity trading. Fundamental analysis can also be used for investment as we will see later.
Others will prefer a more graphical approach. Indeed, most traders are familiar with technical analysis, or at least they know what it is. This includes a whole bunch of “graphical” methods such as supports and resistances as well as countless indicators that help the trader make a buy or sell decision.
There are still other ways of trading such as quantitative trading or arbitrage, which are often reserved for institutional trading, but not only.
As mentioned above, the main difference between trading and investing will be the time horizon. Indeed, it is not uncommon for a long-term investment, such as BTC or real estate, to have a time horizon of 10 years or even longer!
Some investment funds specialize in Venture Capital, i.e. they invest in the capital of the company directly, generally with a rather long time horizon.
Besides the fundamentals such as technical analysis, the investor would have a lot more research to do in order to ascertain the value of an investment asset. These include the macro economic factors, risk and reward profile, time horizon of the investment and many more!
To hedge against risk, it is important to diversify and not throw all your eggs into one basket. An example of this is to add the SMART Bots to your portfolio. If you are a holder in crypto, the SMART Bots can trade on your behalf on full automation to help you accumulate profits. That way, you’ll benefit from holding as well as trading.
Is it too late to invest in Bitcoin?
It depends on your point of view, the miner who has been in the cryptos market since 2010 will tell you that yes, it is too late. On the other hand, the institutional investors who are buying Bitcoin massively and participate greatly in the recent rise will have a different opinion.
At the end of the day, you need to do your own due diligence through research and study before making any decisions. It’s important not to get swayed by opinions and assess your risk and reward profile and cash flow before jumping into the trading and investing.
What is the way to enter the cryptos market?
It depends on your time horizon and your capital! If you have a huge capital of several hundred thousand dollars and have a time horizon of several years, then it is still possible to invest in BTC.
You can also invest for several years in recent projects that have a very low price, but this will unfortunately more often be a gamble than a real investment.
You can also opt for an automatic trading solution such as the SmartBots from 4C-Trading.
Regardless if you’ve chosen the position of trading or investing, one thing remains true – stay rational and non emotional, have patience and never be afraid to do a course correction should the situation calls for it.
The Greed & Fear factor is high in crypto and it is important that you know what you are doing and have a robust strategy before diving in. Never invest more than you can afford to lose and cost averaging your way in is a safer bet over throwing all in, all at once.
Over time, you will realise that, besides the gains, it is the character building that is most rewarding. Happy trading and investing! Stay safe!