Trades and Investments

    A trade is a buy in a certain stock for six months or less. Its commitment level is comparable to a high school relationship which isn’t likely to last longer than six months. Often a trade is bought before an ‘event’ or catalyst is going to happen. A catalyst is anything that increases the price of a stock. After the catalyst occurs, a trade is to be sold, no matter what the market is doing. In trades dividends are not huge moneymakers.

    An investment is a buy in a certain stock for more than six months. Its commitment level is comparable to a marriage. A dividend is when a corporation pays money back to its shareholders. This is a good thing to look for in an investment.

    15% is the magic number. When a stock that has been bought as a trade (and is pre-catalyst) or an investment decreases in value about 15%, there are two options: buy more of that stock or wait. Because the stock bought was originally a good price, now that it is “on sale”, it is an even better price. The average point at which the buyer is making money decreases if more stock is bought at a better price.

    A short sell is where the trader borrows a stock from a broker. The trader then owes the broker, not money but a stock. The trader sells the stock. Then if the borrowed stock decreases in value, the trader can buy stock to return to the broker. The difference in the original stock and the one returned to the broker is kept by the trader. With a short sell, the price of the stock can also increase and the trader still owes the broker a stock but must buy the stock to be returned at a higher price. A trader should never short sell stocks that they own.