Trading and Investment

Introduction:

Learn Trading and Investment from NISMT Share Market Class Nagpur. Most people mix trading and investment. In this article we will differentiate trading and investment on basis of the goal we want to achieve.

Understanding Trading and Investment:

We first need to understand what is not trading or what is not investment. Trading always not mean intraday trading. many people confuse trading with intraday trading. Likewise many people have misconception that investing means long term holding of upto 2 or 5 years. Term trading and investment just differentiates the percentage we want to achieve.

Small percentage of 3 to 10 are termed as trading and as we move towards large percentage like 25 to 30 are categorized as investing. The percentage and approach to achieve for small or large percentage is what differentiates trading and investing.

Trading 20 to 30% movements:

20 to 30% are termed as large swings. These trades can be categorized as investing where the approach is different from what we use to trade small percentage. To capture large swings we need to use chart analysis along with fundamental analysis. Large cap companies do provide one max two opportunities in 12 months. Such large swings can be traded through cash.

In case the price goes further down then another entry is done at lower levels thereby averaging the position. Here we dont use stop loss. Instead averaging is preferred while targeting large swings. Large swings are taken on day time frame chart and gets matured in 3 to 4 months time. At the time of exit analysis is done and if the stock have potential to move further then decision is take to hold the stock further.

Trading 10 to 15% movements:

Swings of 10 to 15% are termed as small swings. Small swings can be taken only on basis of chart analysis like level or patterns or breakouts. Small swing trades should only be taken with strict stop loss. Also reward to risk in small swing should be around 10. For example for a 10% trade the stop loss can be 1%. Small swing trades are usually taken on 1 hour time frame chart and usually gets matured in 4 to 6 weeks time.

Trading 3 to 7% movements:

3 to 5% movements are also traded with strict stop loss on 15 mins or 30 mins time frame. Reward to risk is kept towards 10. Meaning for 5% reward we take 0.5% risk. Such small trades are matured in few days to few weeks.

Trading 1 to 2% movements:

1 to 2% movement are traded on 15 mins time frame. Usually such trades are matured in a single trading session hence are termed as Intra Day trades. Rest all trades are positional where the position is held for more than one day (trading) session. Reward to risk in intraday trades is kept a bit low towards 3 to 5

Approach to Trading and Investment:

Ideally trading should be done from the profits of Investing. New traders who are fresh to market shall take first trade of 20 to 30%. Even with a capital of 25000 one can take a trade of 20 to 25% in large cap company. Even if the trade goes into loss the trade can be held until it goes into profit. Person with high capital can trade in multiple stocks by dividing the total capital.

Once a profit of even 5000 is earned, this profit can be utilized as risk in trading. To start with traders can take risk of 500 Rs per trade. Trades can be taken in commodity where margin trading is done. Trade of approximately 1 lac can be taken with margin of 15000 and a risk of 500. Funding of risk for 10 trade is funded from profit of investing.

This approach is the safest approach for trading where the capital is very safe and is preserved. And the risk for trading is funded by the profit from investing.