� |
Trader or Investor?
You
can�t watch financial television or pick up an investment
publication without seeing the terms �trader� or �investor�
a couple of hundred times.�
But what are the differences between these two types
of participants in the financial markets?�
What behavior is appropriate for each?�
Can you mix the characteristics of the two pursuits
or is this likely to get you in trouble?�
What should be the focus of each?�
It IS important to figure out if you are primarily
an investor or a trader.�
You can be one or the other at different times, but
you have to decide which hat you�ll primarily be wearing when
embracing a specific transaction.�
What is the key difference between an investor and
a trader?�
An investor has to first be concerned about the fundamental
data about a stock, since he is in a position for a longer
period of time.� Technical
analysis is secondary to an investor.�
The trader needs to focus on recent price action of
the individual stock and the market as a whole.�
The investor and trader get into a transaction for
different reasons and needs to keep in focus why they are
holding the position they are in.�
A trader may buy or short a stock because of a particular
bottoming or topping action on a price chart.�
An investor looks at a new product introduction or
a consistent pattern of earnings.�
An investor better know what is happening in an industry,
where in the simplest terms a trader may not even care what
products a company manufactures as long as the share price
exhibits certain characteristics.�
The investor better read as many financial publications
as possible, and he�d better know how to read an income statement
and balance sheet.�
On the other hand an investor needs good charting software,
a fast link to the markets, and a bookcase full of books on
technical analysis.��
There is a spectrum in which the two profiles can
be mixed.��
In the middle of the time spectrum you need to develop
both skills.�
You can have great gains by purchasing a rapidly growing
company with great earnings when the share price is temporarily
undervalued.�
On the short end of the time spectrum the trader may
not be concerned about fundamentals since he is only holding
the shares for a handful of minutes or hours.�
All he cares about is that the shares seem to be at
the low end of a range or has been steadily moving higher
with a discernable amount of momentum.�
On the long end of the spectrum the investor doesn�t
care if a stock is at the exact bottom of a move since he
won�t be selling it until the stock significantly exceeds
the top of it�s current range due to excellent earnings and
product growth orchestrated by a superb management team.
|