As a trader, you are always looking for short term profit. While as an investor, you are willing to invest long term in a company or a security to make capital gain. In trading, you are always looking for making profit from the volatility in the market. Day trading has a short term time horizon of only one day. A day trader opens a trade and closes that trade in the same day to make a quick profit. Day traders need quick reflexes as well as a keen observation of the market volatility. Many people day trade successfully. However, on the other hand hand, many people have a long term time horizon of many months to years. They have a long term financial goal and this matches with their investment style.
Investors in theory can wait for a long time to see their stock pick to play out. A company's stock may be ridiculously cheap. But it may stay like that for a long time before it catches everyone else's attention and the price is bid up. It might be good for investors to learn a few tricks from traders especially day trading that can help them make a few quick bucks.
Successful day trading requires an innate sense of discipline. Successful day trading requires the sense when to commit money to a trade and when to cut the losses and run. However, if you are an investor who has never day traded, you might have done so much research and committed so much time waiting for a position to work out that you might forget the cardinal rule of traders: The market doesn't know you are in it.
Now as a momentum investor, you need to look for securities that are going up in prices especially if accompanied by the underlying growth. What this means is that instead of buying low and selling high, what you will be doing is buying high and selling even higher.
When a security goes up in price with a strong demand underneath it, it said to have price momentum behind it! Now, as a long term investor, you should look for securities having momentum behind them just to avoid getting stuck with securities for months before they start moving. It pays to be patient. But it works even better when the money that you invested works for you while you wait.
Now most serious momentum investors are infact swing traders who hold positions for a few weeks or a few months. Most of them employ some sort of momentum indicators to help them identify when it is good time to buy a stock. Some of the indicators that can be used is the Relative Strength Index (RSI), Moving Average Convergence and Divergence (MACD) and the Stochastic Index.
However, if too many investors start practicing momentum investing, it sometimes leads to bubbles like the tech bubble that happened at the end of 1990s. Now, when doing momentum investing, you need to also do some fundamental research behind the company. As most of the momentum investing done during the dot com bubble was on hearsay without being supported by any strong fundamentals!
Author Resource:-
Mr. Ahmad Hassam has done Masters from Harvard. Read this shocking 40 page FREE FRWC Brutal Truth Report on trading robots and their true potential! Turn $200 into $100K in just 3 months with this FREE Penny Stock Report.
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