The financial market offers several ways for people to make money. Some people make money directly by trading or investing. Others generate a return by staying on the sidelines and providing analysis on the market.
You might ask what are the real differences between these two careers and the pros and cons that each of them may have. Therefore, we want to help you in your choice.
In this article, we will look at the key differences between being a trader and being an analyst.
What is a trader?
A trader is a person who is directly involved in the financial market through day trading. Day trading is defined as the process of buying and selling financial assets like stocks and currencies with the goal of generating a profit.
Traders differ from investors in that the latter implements trades and holds them for a long time. Some investors like Warren Buffett hold shares for decades.
A trader makes money when his thesis is correct. For example, if a stock is trading at $10 and a trader implements a buy trade, they will benefit if it remains above $10. The trade will be out of money if it remains below the opening price.
Day trading is a high-risk and a high-reward way of making money. When things move your way, your trading account will be at a positive level. On the other hand, if things don’t go right, it can lead to major losses. Because of leverage, it is possible to lose more money than your account balance.
Highlights for a day trader
There are some crucial points to know before you start your trading career. For example, the soft skills you need to have or, anyway, develop over time, what you need to know before (and we emphasize BEFORE) you start trading, the pros and cons of this job. Here is a brief summary.
- Skills & Qualities required: Discipline, Risk Management, Adaptability, Resilience.
- What you need to know: Technical analysis, how to develop and refine trading strategies.
- Potential rewards & benefits: Huge profits, freedom of working independently.
- Risks and challenges: Market volatility, emotional stress, and financial losses.
How day traders work
Day trading is a process where traders analyze and implement trades in the market. They focus on fundamental and technical analysis. Fundamental analysis is the process where a trader looks at the economic and financial news to determine their impact on key assets.
Technical analysis, on the other hand, is a process where the traders look at the charts to predict the future price movements. It involves looking at chart patterns like triangles, head and shoulders, wedges, and rectangles. It also involves using candlestick patterns like doji, harami, and hammer to predict the direction of a trend.
Technical analysis also involves using indicators like moving averages, Relative Strength Index (RSI), and the MACD to predict the next phase of a trend.
After conducting an analysis, a trader implements a trade and sets a stop-loss and a take-profit. A stop-loss is a tool that stops a trade when it reaches a certain loss level while a take-profit stops it when it reaches a certain profit level.
A day trader does not need to have a college degree in finance and other related courses. Indeed, most people who day trade do so after leading online and using a demo account to test their strategies.
It is also worth noting that some day traders then move on to become analysts. This happens when they have many years of experience in the market.
What is an analyst?
An analyst is a person who specializes in making forecasts about different financial assets in the market. In most cases, analysts tend to specialize in key financial assets. For example, some analysts provide forecasts on stocks while others focus on commodities, currencies, and cryptocurrencies.
Some analysts follow single assets. For example, there are Wall Street analysts who follow crude oil and others who track individual stocks like Apple, Microsoft, and Google.
Analysts make money in several ways. First, most of them are applied by companies like hedge funds and investment banks. They provide in-depth analysis to other players in their institutions.
Second, some analysts make money by running their own research shops that provide studies to their customers. These customers can be individuals or companies in the financial market.
Highlights for an analyst
As we did above for day traders, we will now briefly go through the major points of what is required to embark on a career as an analyst. In addition to what you see below, remember that you also need to make your analysis results understandable!
- Skills & Qualities required: Strong analytical abilities, financial knowledge, proficiency in data analysis tools.
- What you need to know: Fundamental analysis, technical analysis, and market research (in the role of a trading analyst).
- Potential rewards & benefits: Working in a dynamic industry, opportunities for career growth, potentially high salaries.
- Risks and challenges: The need for continuous learning, working under time pressure, dealing with uncertainty.
What an analyst does
An analyst focuses on conducting an in-depth analysis on their preferred financial assets and then submit their views in the form of written or video reports. Analysts are often interviewed by popular financial media platforms where they share their opinions.
An ideal analyst should have some qualifications. For example, they should have some academic qualifications in the financial market.
Also, in most cases, the analyst should have some experience working for companies in the industry. The most sought-after analysts are those who worked from prestigious institutions.
Analysts vs financial advisors
A common question is whether there is a difference between financial advisors and analysts. On the one hand, analysts are professionals who use their experience and expertise to provide forecasts on key assets in the market.
A financial advisor, on the other hand, is a professional who provides help to people when making their financial decisions. The concept behind this is simple. Because of the complexities in the market, many people don’t have a good understanding about how things work and how to invest.
As a result, financial advisors come in between and provide advice to these people. Some of the popular advice offered are:
- The assets to buy
- How long to hold a position
- What to avoid
Financial advisors are regulated in most countries. These regulations protect customers from unscrupulous advisors who don’t have the experience and expertise.
Day Trader vs Analyst
Day traders and trading analysts have distinct roles with different routines and responsibilities. While employed traders and analysts must adhere to their employers’ schedules and guidelines, independent professionals enjoy greater flexibility in managing their time.
Day traders typically work during market hours, which vary depending on the financial instruments they trade. For example, stock markets are open on weekdays, while the forex market operates 24/7.
Day traders engage in active buying and selling within short timeframes, aiming to capitalize on intraday price fluctuations. They employ various strategies, utilize technical analysis, and closely monitor market trends to make rapid trading decisions.
On the other hand, trading analysts focus on conducting in-depth research, analyzing financial data, and providing insights to support investment decisions.
They are responsible for evaluating market conditions, studying company financials, and identifying potential investment opportunities. Trading analysts typically work on a broader time horizon, looking at longer-term trends and developments that can influence investment strategies.
Although day traders and trading analysts differ in their approaches, there are similarities between the two roles.
Both require a solid understanding of financial markets, strong analytical skills, and the ability to make informed decisions.
Both roles emphasize the importance of staying updated with market trends, using technical and fundamental analysis techniques, and managing risk effectively.
It’s worth noting that some individuals pursue both roles simultaneously, combining day trading with analysis to enhance their trading strategies. This allows them to leverage their analytical skills and market insights while actively participating in the trading process.
In conclusion, the careers of a day trader and a trading analyst offer distinct pathways within the financial markets. Day traders thrive on the fast-paced nature of intraday trading, relying on market knowledge, technical analysis, and quick decision-making. To become successful, day traders need to be correct most of the time.
Trading analysts, on the other hand, excel in conducting in-depth research, analyzing data, and providing valuable insights to support investment strategies. Analysts are not always accurate, because predicting the future is extremely difficult (for example, it was almost impossible to predict the Covid pandemic).
While their routines and time horizons may differ, both roles require strong analytical skills, a deep understanding of the markets, and the ability to navigate risks effectively.
Whether one chooses to pursue the excitement of day trading or the analytical depth of trading analysis, individuals should carefully assess their skills, interests, and risk tolerance to embark on a fulfilling career in the ever-evolving landscape of finance.
External useful resources
- What does a trading analyst do? (With duties and skills) – Indeed