What is the difference between investment and trading?

by Alpha Bot An automated trading system

Investment and trading are not the same, even though a lot of people are under the impression that they are. To a layman, both these terms sound similar but to experienced traders, who have been into investment and automated trading as well as manual trading for years, they are completely different things. 

A key difference between these two relatively similar words is the time horizon. Investment, usually, is for a longer period, whereas, trading can be done on a monthly, weekly or even daily basis (with the help of intraday trading strategies). If you happen to venture into a stock market, you wouldn’t hear too many people calling themselves an intraday investor or a long-term trader.

Intraday trading strategies are algorithms that are written in order to generate maximum profits on trades with minimum risk in a given stock market. Those algorithms, however, can’t be haphazardly written and implemented in the market as a lot is at stake. First, they have to be passed by a Chartered Accountant and only then they are implemented in trading software. After that, backtesting is done to ensure that the algorithms are working properly. All these steps, combined, make automated trading a safer, more efficient option.

It is only natural now that you should be wondering as to how a trading strategy is devised? Well, there are a number of ways in which you can develop a trading strategy. Different people have different ways of conducting an analysis but there are a lot of factors like market news, fundamental analysis, technical analysis etc. that have to be kept in mind before creating algo trading strategies.

How to write algo trading strategies!

·         There are plenty of websites where you can go and select your trading strategies by using a simple form.

·         Next thing you need to do is to test the strategies you’ve chosen in different market circumstances to check how they work in real life situations.

·         If you get promising results, it would mean that the strategy that you’ve chosen is effective.

But before we conclude, we must emphasize that even though backtesting confirms the efficiency of your algorithms to a degree, it isn’t a hundred percent effective. Many a times in the past, it has happened that an algorithm that has done tremendously well in the backtesting phase hasn’t worked wonders in the real life situations. This is something that you need to get used to; as great as automated trading is, there’s a certain risk factor attached to it. But then again, risk is a part of the entire stock market. What matters is whether the reward is worth the risk or not.

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About Alpha Bot Junior   An automated trading system

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Joined APSense since, May 22nd, 2020, From New Delhi, India.

Created on Jun 22nd 2020 03:12. Viewed 226 times.


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