Hi guys,
I wonder how many times this question has been asked before on how many stock forums all over the world?
My answer is both. Invest and trade. To me, "investing" as it is referred to here is just a long only trading strategy over an increased timeframe.
"Trading" is only to take advantage of an obvious move or hedging.
I never trade a stock. Most of my picks expose my capital to energy and gold, I rarely venture out of these markets. To that end, I am more inclined to protect my profits by shorting the underlying instrument which controls sentiment for my stocks.
For example:
I buy gold prducing stocks on a significant low in November '08. The stock gains support from the gold price and moves rapidly upwards. Now I am at a 30% gain but expecting a sharp fall in gold to reduce that to 15%. So I take a short out on XAU proportional to my holdings in gold miners with a tight stop at the last high. Now if there is a sharp drop on gold, the short will usually protect my profits and sometimes exceed the losses.
If I am incorrect in my analysis and there is a large upward move, my short will get stopped out and any losses from the short will usually be taken care of by gains on the miners.
Profits are stored in USD as a risk free currency hedge against the AUD.
As a more current example: have just gone long a slew of energy (gas and oil) stocks, expecting a move up in the oil price. Once this move up is complete, if I am anticipating a retracement on oil rather than exit my longs or short those stocks as a hedge, I will take a short out on oil or gas futures proportional to my holdings (with tight stops at the previous high). This proportion is easily handled using leverage (rather than invest the same amount of capital again in the opposite direction). I never long with leverage.
Hopefully this makes sense. It obviously doesn't work with all stocks, but my personal feelings are if you can't hedge against the underlying instrument which controls sentiment then it probably isn't worth investing in.
It is also worth noting that not all stocks are suitable for "trading", usually those that are not well known or understood by the market until there are changes to its fundamentals.
As part of my overall strategy, I also never take a "trading" position unless it is opposite to my natural market state (investments and bank account). e.g. I will never trade gold oil or AUD long, only short.
I wonder how many times this question has been asked before on how many stock forums all over the world?
My answer is both. Invest and trade. To me, "investing" as it is referred to here is just a long only trading strategy over an increased timeframe.
"Trading" is only to take advantage of an obvious move or hedging.
I never trade a stock. Most of my picks expose my capital to energy and gold, I rarely venture out of these markets. To that end, I am more inclined to protect my profits by shorting the underlying instrument which controls sentiment for my stocks.
For example:
I buy gold prducing stocks on a significant low in November '08. The stock gains support from the gold price and moves rapidly upwards. Now I am at a 30% gain but expecting a sharp fall in gold to reduce that to 15%. So I take a short out on XAU proportional to my holdings in gold miners with a tight stop at the last high. Now if there is a sharp drop on gold, the short will usually protect my profits and sometimes exceed the losses.
If I am incorrect in my analysis and there is a large upward move, my short will get stopped out and any losses from the short will usually be taken care of by gains on the miners.
Profits are stored in USD as a risk free currency hedge against the AUD.
As a more current example: have just gone long a slew of energy (gas and oil) stocks, expecting a move up in the oil price. Once this move up is complete, if I am anticipating a retracement on oil rather than exit my longs or short those stocks as a hedge, I will take a short out on oil or gas futures proportional to my holdings (with tight stops at the previous high). This proportion is easily handled using leverage (rather than invest the same amount of capital again in the opposite direction). I never long with leverage.
Hopefully this makes sense. It obviously doesn't work with all stocks, but my personal feelings are if you can't hedge against the underlying instrument which controls sentiment then it probably isn't worth investing in.
It is also worth noting that not all stocks are suitable for "trading", usually those that are not well known or understood by the market until there are changes to its fundamentals.
As part of my overall strategy, I also never take a "trading" position unless it is opposite to my natural market state (investments and bank account). e.g. I will never trade gold oil or AUD long, only short.
