Discover The Truth Behind The Best Way To Multiply Your Wealth

The age old battle of Trading Versus Investing and which method is best to ensure your money is working the hardest for you. There is a saying that time in the market is more important than timing the market. This article looks at some of the things to consider when you make this decision.

The shares below have been chosen for demonstration purposes and do not reflect the returns that an investor will achieve when investing in the share market.
Can a Simple Moving Average System Win?

The system used to buy and sell shares is a very simple system buying the share when a 10 day moving average (red line) crosses up through a 30 day moving average (blue line) and selling when it crosses down.

The time period being considered is 2003 during which time the whole market rose by 9.7%.

So at first glance trading a share seems to be the most profitable way to invest in the market. A reliable trading strategy that accurately defines when to buy a share and when to sell the same share can achieve a superior performance to the straightforward buy and hold strategy.

If increasing your returns above the market (9.7% in 2003) is what you want to achieve then developing your trading strategy becomes vitally important.

If it’s this simple then why isn’t everyone actively trading the markets. There are some other things to consider when actively trading the market.

Do you have a well developed trading plan?

The first and most important is to develop a reliable and profitable strategy for trading. Many traders do not have the knowledge or haven’t spent the time developing a system that will consistently outperform the market.

These traders are destined to fail in the markets simply because their strategy does not work. In this case the traders seeking higher returns can often end up in a worse position than if they simply bought a share and held on to the share for the same period of time.

What’s the difference between theory and actual resutls?

The second is implementing the trading system to achieve the results that can be achieved in theory. When the shares are actually bought and sold, there may be a difference between the price you want to pay for the share and the price you do pay for the share.

Following the system above states buy ANN at 5.91. When it comes time to buy ANN the trader may end up paying 5.93 for the share. This is known as slippage. For the investor it makes very little difference as his or her transactions are very infrequent, maybe once every 2 – 3 years.

For the trader this difference can be significant reducing the advantage over a buy and hold strategy, especially if the strategy requires frequent trades to achieve the results.