The verdict is in: trading stocks can make you filthy rich.
Investing in stocks is an ideal choice when it comes to learning how to invest. It teaches you how to gauge markets and evaluate risks. But you probably have a big question in the back of your mind: should you be a day-trader or a long-term investor?
The answer to that question could decide your entire investment strategy. Choose the right one, and you'll be on a good start towards a prestigious stock portfolio. Choose the wrong one, and you're pouring money down the drain.
In this guide, take some investing tips and learn which is for you.
As the name implies, a day-trader buys and sells stocks on the same day. Ideally, a day-trader buys stock when it's cheap, and sells it when it's expensive. They focus on very small price fluctuations.
There's a learning curve, knowing when to buy and when to sell. A day-trader needs to "read" the market. It takes practice knowing when to dump shares for financial gain.
That includes keeping up to date with their target companies. A good day-trader is on top of recent financial news. Predicting when shares will tank or explode takes practice.
Finally, a day-trader should be aware of the "pattern day trading rule." This determines how much stock they should buy and/or sell in a single day.
Day-trading is hard work. A day-trader may make small, consistent returns on their investments. However, there's a good chance they'll lose 80 to 90% of their investments.
As such, a day-trader incurs much more risk. A stock that continues to flag may make it impossible to earn that money back.
However, a day-trader investing strategy means capitalizing on sudden changes in the stock market.
A long-term investor, as the name implies, holds onto their stock. Usually a long term investor will hold their investments for over three years.
A long-term investor likewise needs to learn to read the market. A huge dip in a company's stock might prove to be the best time to buy. A long term investor is in it for the long term, roughly 10 years horizon.
The major upside of long-term investments is higher returns. A day-trader might make incremental returns, but a long-term investor makes the big bucks. When a stock is peaking, they get a promise of a much higher return overall.
However, long-term investors need to exercise more caution. This means less risk, but also less flexibility. A long-term investor needs to resist the temptation of selling during a sudden bump in value.
Long-term investors have to have a lot of patience. They might not see a return for months, or in some cases, years. That patience will eventually pay off.
A day-trader and a long-term investor both employ very different strategies. A day-trader capitalizes on incremental returns and never keeps stock for long. A long-term investor waits patiently for the right time, providing bigger returns.
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