Our Blogposts

  • Admin123 : Sid Bhattacharjee
  • Date : 2020-11-02

Are you a trader or an investor, know the difference!

In this blog, we are going to talk about trading in general and swing trading in particular and what is investing. There are siginifant differences and affects the decision process as well as the results. But for now, let’s understand the difference between Stock trader and an investor.

Let’s first talk about Investor. Investors look for long term holding of assets. They invest in financial markets as if they are buying a property or gold whose value will appreciate in future and they will profit from the increased value. Investors will buy stock or ETF and hold on to it for a prolonged period of time, perhaps anywhere between three months to 3 years or beyond depending on the performance of the stock or ETF and look to make profit from the capital gain which is increased value of the stock/ETF after the holding period. Investors look for the fundamentals of the Stock or ETF in form of its financial statements, micro and macro economic conditions and such parameters before making their decision to buy or sell or hold the Stock or ETF.

Investors are may or may not be focussed on residual income although they continue to receive dividends or any other offers made by the company to the shareholders. Residual income could also include income from selling covered Call Options, also sometimes called "renting out" the Stocks. All these residual incomes are capable of reducing the cost base of the Stock and contribute to reduction of risk.

A Stock trader, on contrary has a much shorter holding period of the stock or ETF, from minutes to hours for day traders to one week to three months for swing traders. We will focus on swing trading as it does not require the trader to stay glued to the computer screen looking for trades or closing the trades, notwithstanding the possible stress associated with such type of trading.

Swing traders look for possible opportunities of upswing or downswing of the underlying stock or ETF to make profit and such trades last between couple of days to anywhere between eight to nine weeks or up to three months. Traders are also looking for capital gains but in a much shorter time horizon as mentioned. 

Stock traders do not look for any residual income although they might get drips and drabs of dividends and other incomes such as premium from covered calls. Stock traders use technical analysis on a candlestick or any other charts or use trading applications to determine whether there is an opportunity for an underlying Stock or ETF to make an imminent upswing or downswing that may be traded. Successful traders use probability and reward-risk ratio (RRR) while entering, managing and exiting their trades. Please look out for other blogposts on these two very important topics: Probability and RRR.

Just to be very clear, the definition we have used here in terms of holding time of an underlying is our own, as there is no hard and fast rule of how long you will need to hold an underlying stock or ETF or Index to be called a trader or an investor. We just used the time period to make the point that, there does exist a differentiation between a trade and an investor. Sometime, the tax authorities of the country may decide what would be taxed from your income based on how long you had held a stock/ETF/Index. As such we would advise that you please consult your accountant on that.

Please visit the following URL for more information on various trading applications from Sapphire Capitals which are designed to deliver high probability trading opportunities for swing trading as well as for intraday trading:

Wishing you all the success in all your trading endeavours.

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