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Trader or Investor?

February 24, 2012 | Comments: 0 | Views: 88

Investor or Trader? Which are you? As I continue on my journey of attempting to double $10k in the stock market in less than one year, I started thinking; What am I? Investor or Trader? I quickly decided that I am an investor. Why? The answer is simple; I invest in good companies with good financial statements. When I make a decision to buy a stock it is because it has passed several tests and/or screens. Adhering to a strict criteria for selecting stocks enables me to benefit in several ways.

1) If the stock goes down and I am in a losing position, I don't necessarily have to sell it because I have the security of knowing that the company has solid fundamentals and was under priced to begin with. There is nothing worse than holding some high flyer with questionable fundamentals when it starts a downward trend. You could lose 30, 40, even 50% really fast. AND

2) A strict criteria reduces the emotion involved when deciding to buy or not to buy a stock.

Traders on the other hand, are looking for momentum stocks and make trades based more on technical analysis than fundamentals. Traders focus on support and resistance levels, break outs and break downs. In most cases, fundamentals (company's finances) are low on the priority list for traders when choosing a stock.

For investors, it is just the opposite. They are looking for strong fundamentals first and it is the most important criteria they use when considering a stock to buy. Of course, they should also be interested in the technical aspect of stock selection, but this is secondary. Their thought process is that they are holding for the long term and that eventually the stock's price will reflect the fundamentals of the company.

The other major difference between investor and trader is the time frame they plan on holding on to a stock. Although it is not an absolute truth, investors have a much longer outlook on stocks. Their plan is to hold for the long term, enduring the ups and downs of the stock's price during the time they own it. Whereas a trader is looking for one move, up or down depending on whether they are long or short. The "perfect" trade means holding on to a stock as long as the stock price is moving in the direction you want it to and selling it when it does not.

Richard Lech, the author has a passion for the stock market and wants to transform people's lives by providing them with tools and information about investing so they may gain greater financial independence.

Source: EzineArticles
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