Before you dive right into trading one of the most basic concepts you need to understand is the difference between trading and investing.

We are all familiar with invest in stocks or mutual funds. Typically we look to profit from the long-term growth of a company through owning its stock. Some investors may hold stocks for years. Some may hold certain stock for 10, 20, or even 30 years or more.

Whereas investors are looking for long-term profit a trader is looking for something completely different. In trading we look to take advantage of certain of the many profit opportunities that present themselves on a short-term basis. A trade can last for as little as a few seconds to as much as several months.

What is a “trade” you ask?

Here is a very simplified example of a trade:

Entry – Buy GM at the open of the market on Monday
Exit  –  Sell GM at the close of the market on Monday

This is the most basic form of trading. The example trade above contained only two parts 1 – The entry and 2 – The exit. An entry opens a trade and the exit, logically closes a trade. Once the trade is exited we have either a profit or a loss.

In our GM example if the price of GM would have risen from when we bought the stock to when we sold the stock we would then have a profit. Conversely, if the stock price had fallen by the end of the day we would have taken a loss.

It is important to note that this particular trade was a “day trade”. Why? Because the trade itself was entered and exited all in the same trading day.