Investing vs trading: how to figure out which is right for you

In this lesson, you will learn:

• The pros and cons of medium-term trading
• The pros and cons of long-term trading

When trading on any exchange, a wide variety of strategies are applied depending on what specific holding period for the asset a potential investor has set for themselves. Among beginning investors, medium-term trading enjoys the greatest popularity, while long-term trading is already the domain of experienced players. Let's try to understand what these strategies represent and which one is better to choose.

Medium-term in Trading

Exchange trading allows you to make a profit with various approaches depending on the experience and skills of a particular investor. Medium-term trading means that between buying or selling an asset, several days to a month and several weeks pass. Medium-term is very often called swing trading from the English word "swing," meaning "turn, fluctuation." This term contains the essence of such trading — the ability to earn from rate changes, including under the influence of momentary factors: regulatory changes, political statements, news from the stock market, etc.

Medium-term trading doesn't require the trader to monitor quotes 24/7 in online mode, however, it assumes that the investor keeps their finger on the pulse every day, checks major news sources, and understands general price change trends. Moreover, the trader is also helped by observing quote changes within each day — this is necessary for understanding medium-term tendencies. The trader's main task is to determine price support and resistance levels in order to correctly set closing orders. In other words, medium-term trading requires the ability to sell an asset at the right time.

In many ways, medium-term trading is similar to intraday trading. In both cases, the investor earns not from fundamental growth, but from the volatility of one asset or another. Traditionally, medium-term forex trading, like medium-term stock trading, is the prerogative of investors wishing to earn from rate jumps. From this point of view, medium-term trading on a crypto exchange opens up many opportunities for the investor, because cryptocurrencies remain a consistently volatile asset. However, due to high volatility, medium-term trading in the cryptocurrency market also carries enormous risks: the behavior of a particular currency can be completely unpredictable. Therefore, analysts advise beginning investors to first monitor selected currencies for several weeks or months and only then begin real trading.

To understand general trends, medium-term trading involves studying candlestick charts, as during intraday trading. This allows you to understand the resistance and support lines of a particular currency. The main danger for a trader in the medium term is to incorrectly determine the entry point and exit point, that is, to buy high and sell low. These risks can only be mitigated through experience and constant monitoring of the cryptocurrency market.

An equally important skill in the medium term is the ability to wait out failures and drops in quotes: it's necessary not to panic and not sell an asset, even if it's rapidly depreciating. The most important thing is to follow the chosen strategy and not make decisions under the influence of emotions. Moreover, you can compensate for lack of experience by combining several strategies at once.

To do this, you can divide investments even in one type of altcoin into long-term and medium-term: don't touch the first one under any market fluctuations, and trade the second depending on rate fluctuations. Experienced traders also lock in profits in parts. For example, you can divide investments into three parts and by selling each of them when the rate grows, lock in profits — 10%, 20%, 30%. Such a strategy doesn't allow you to maximize profitability, but it helps minimize losses. For an experienced trader, medium-term trading can yield from 10% to 40% profitability per week — this is a very high indicator, but to achieve it, you must necessarily monitor the news and analyze quote charts.

As experienced investors say, medium-term trading develops discipline in the trader and accustoms them to detailed implementation of the adopted strategy. If a trader initially decided to sell a third of the entire volume of a particular cryptocurrency upon reaching a 10% profitability level, they must do it — otherwise there is a high risk of not returning their investments. At the same time, the trader learns to develop a trading plan, which allows them to think globally and after some time transition to long-term trading. By monitoring the fluctuations of several currency pairs, the trader gains the necessary experience and learns to forecast trends. Moreover, they acquire the skill to correctly set take-profit and stop-loss orders.

Long-term in Trading

Unlike medium-term trading, long-term trading usually lasts from several months to several years. Such an approach always involves investments in a fairly serious volume of instruments to maintain open positions. First of all, long-term forex trading, like long-term stock trading, means buying undervalued assets, for example, IBM shares at the dawn of computers or Tesla shares before the growth in demand for electric vehicles. The long term works similarly in the cryptocurrency market.

First of all, long-term trading involves investments in some undervalued currency. For example, a trader may be confident that sooner or later the complete legalization of bitcoin will lead to reaching a level of $20,000 per BTC. In such a case, they may well acquire the world's main cryptocurrency for $9,000. Another approach involves investments in a certain altcoin, which due to its technical characteristics may "take off" after some time. In any case, long-term trading is primarily distinguished by the absence of reaction to current rate fluctuations. The reason for exiting an asset and locking in profit will only be a sharp change in the situation. For example, long-term stock market trading often means that the investor exits the asset after an IPO.

A long-term exchange strategy involves several mandatory factors at once. First, the potential investor must have resources for long-term investments, that is, they must have a sufficient volume of funds. Second, they must have experience determining long-term trends, that is, the skill to find an undervalued asset. Third, there must be a formed trend for long-term trading in this market, that is, the asset must have some trading history, and fundamental factors that determine its future changes must be defined.

Based on these factors, analysts most often say that the long term is the prerogative of experienced investors. As Warren Buffett once described his approach to investments, first you need to find an undervalued market, then an undervalued company in it, and invest for several years. Long-term trends are much more seriously influenced by fundamental factors than momentary market fluctuations, that is, the investor is required to determine a truly valuable asset.

Therefore, long-term trading necessarily involves primarily fundamental analysis, which determines investor behavior much more than technical analysis. And this primarily distinguishes the long term from any other strategies. At the same time, this type of strategy remains much calmer than medium-term and especially short-term trading. For long-term investments, the trader doesn't need to monitor news 24/7 or study daily market fluctuations. The main thing is to choose the right asset for investments and, whatever perturbations occur in the market, never exit it, but only if there are fundamental growth factors.