Trading
Investing in companies
By: Andrew Zenk
TABLE OF CONTENTS
2
3
1
4
Order execution
People
What’s trading? What’s investing?
Who trades? Why?
What kinds of strategies are used?
Strategies
How does an order work?
Trading
TABLE OF CONTENTS
6
5
Conclusion
What can be traded?
Instruments
Presentation takeaways
INTRODUCTION
“The best investment you can make is an investment in yourself… the more you learn, the more you’ll earn.”
1
Trading
(or investing?)
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Trading
Stock trading is a form of investing that prioritizes short-term profits over long-term gains.
It can be risky to dive in without the proper knowledge.
Frequent transactions, like buying/selling stocks, commodities, currencies, etc.
Traders seek higher returns than investors. 10% per year vs. 10% PER MONTH.
Trading profits can be made by buying high and selling low, or selling low and buying high.
Traders often employ technical analysis tools like moving averages to find potential profits.
Trading
Investing
Investing
The goal of investing is to gradually build wealth over an extended period of time using stocks, indexes, mutual funds, etc.
Investments are often held for years or decades.
Investors will ride out the downtrends in the expectation that prices and losses will be recovered.
Investors are more concerned with market fundamentals, like price-to-earnings ratios and management forecasts.
The day-to-day fluctuations are less important than the long-term overall trend.
Orders are mechanisms or tools, NOT a strategy inherently.
2
People
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Who trades? Why?
Types of traders
Active investor
They like to be in control of their investments, as they are in control of their professional lives. They want to be actively involved in investment choices and financial affairs in general.
Passive investor
They often started out with student debt or at a lower salary and worked their way up. As a result, they prefer security over risk when choosing investments. They achieve this through diversified portfolios invested in established, brand-name companies and funds.
Casual investor
Once an investment is made, they tend to let it ride believing that it will take care of itself. These passive investors tend to trust in the advice of their financial advisors.
Technical investor
They have a strong desire to get an edge on the markets by recognizing patterns or themes. They are very active and involved with the management and direction of their investments.
3
Strategies
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Who trades? Why?
Position trader
Day trader
Swing trader
TRADING STRATEGIES
Scalp trader
Positions are held for months to years
Positions are held throughout the day only
Positions are held from days to weeks
Positions are held for seconds to minutes
S
P
D
S
Strategies
Position trader
Position traders buy an investment for the long term in the expectation that it will appreciate in value. They are less concerned with short-term fluctuations in price. They do not trade actively, and most place fewer than 10 trades in a year.
Swing trader
Swing traders forecast an anticipated price move. There is heavy exposure to overnight and weekend risk. Traders can take profits by utilizing a stop loss and profit target strategy.
Day trader
Day traders are active traders who execute intraday strategies to profit off price changes. They use a variety of strategies to capitalize on inefficiencies. Most are unsuccessful.
Scalp trader
Scalp traders hold a stock for a very short amount of time. They try to profit off of the bid/ask spread. Scalpers profit off of volatility, internet speed and charting tools.
Strategies
Style | Timeframe | Time period of trade |
Scalping | Short-term | Seconds or minutes |
Day trading | Short-term | 1 day max - nothing overnight |
Swing trading | Short/medium-term | Several days or weeks |
Position trading | Long-term | Weeks, months or years |
“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against it.”
4
Order execution
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How does it happen?
Order types
Market order - Instructs the brokerage to complete the order at the next available price. They are generally executed immediately, unless there’s no liquidity.
Limit buy - Instructs brokerage to buy AT OR BELOW a specified price.
Limit sell - Instructs brokerage to sell ABOVE the current price.
Buy stop - Instructs brokerage to buy when price reaches specified price above current.
Sell stop - Instructs brokerage to sell when prices goes below the current price.
Trailing stop - Instructs brokerage to sell at defined percentage or dollar amount away from current price.
Good till canceled (GTC) - Order remains in effect until filled or canceled.
Immediate or cancel (IOC) - Order remains active for a very short period of time.
All or none (AON) - Entire size of order filled, or nothing. No partial filling.
Fill or kill (FOK) - Completed immediately and completely or not at all. AON & IOC mix.
5
Instruments
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What did we learn?
Instruments
Stock - Ownership within a company.
Exchange traded funds (ETF) - Funds representing all sorts of sectors, industries, currencies and commodities.
Foreign exchange (FOREX) - The exchange of one currency for another currency. Currencies are always traded in pairs, with many potential combinations available.
Options - Give the buyer the option of buying or selling something at a certain price at some time in the future.
Futures - A binding contract to buy or sell something at a future date. The price is agreed and the quantity and quality, if appropriate, is set.
6
Conclusion
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What did we learn?
Presentation Takeaways
What they trade
How they trade
Who trades