An insight into the world of trading

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Investing and trading are two opposite ways of trying to make a profit by participating in various financial markets. Most people think of themselves as investors and tend to have an aversion to the label "trader", even though, in reality, some of the investors who identify themselves are actually traders. These people don't know that some of the biggest winners in the financial markets consider themselves traders.

Investors typically seek higher returns over longer periods of time by buying and holding assets. They invest capital in their selected markets on the assumption that the value of their investments will increase over an extended period. As the value of the assets they invest in increases, so does the value of their investment.

Related: Why Investors Should Never Just "Buy and Hold"

The difference between investors and traders

Due to their long-term mentality, investors generally don't have a plan in case their investments lose value. They hold onto their investment in the hope that over time its value will eventually reverse and continue its upward trajectory. Indeed, investors anticipate bear markets with apprehension and do not plan how to react when they lose. When prices crash, investors tend to continue holding their positions.

In contrast, traders take advantage of both rising and falling markets to enter and exit positions in shorter time frames, taking smaller profits more frequently. As such, they have a somewhat negative reputation among innovators and investors. It's not uncommon for marketers to be called "greedy" or "innovation killers." However, the truth is that traders are among the bravest and most disciplined players in the financial markets.

A trader has a set plan or strategy for investing in a market with one goal: to make a profit. Traders do not care about the assets they are trading. All they care about is analyzing trends for an opportunity, so they end up with more money than they started with. In a perfect world, traders would like to go short as often as they go long, allowing them to profit from both bull and bear markets. However, like investors, most traders prefer not to go short because they find it difficult to make money while financial markets are down.

Related: Learn Trading Strategies to Grow Your Wealth

Fundamental analysis and technical analysis

There are two basic premises of trading: fundamental analysis and technical analysis. Fundamental analysis studies the externalities that can affect the supply and demand of a particular market, such as government policies, domestic and foreign political or economic events and much more. For fundamental analysts, they believe it is possible to predict changes in market conditions before they are reflected in market prices by looking at these external factors.

On the other hand, technical analysis is based on the belief that market prices reflect known factors affecting supply and demand for a particular market at a given time. This is a broad field that uses prices and price-related data to determine when to buy and sell. Technical analysis attempts to bridge the problems of fundamental analysis regarding the specifics of timing and risk. Technical analysts believe that careful analysis of price action is enough to capitalize on trends. A technical analyst can analyze the charts of a given market and trade them successfully without understanding them.

There are two types of technical analysts in financial markets. A guy “guesses” the direction of the market through his ability to read charts and use indicators. The other type of technical analyst does not predict or forecast the direction of the market...