Are you an investor, trader or gambler?

What is the difference between investing and trading? You ask different people and you will get different opinions. And if I ask you if you are a “trader” or an “investor”-you might promptly say that I am “long term” investor without even understanding what it means.I will just give you my opinion on this.

An investor is usually a “buy and hold” types. He lives in the realm of “hope”.He buys a security and hopes that the price will go up.He does his “fundamental analysis” and falls in “love” with his/her investment. Even when the price of security is going down,he doesn’t believe in selling it because he is convinced about his analysis. He doesn’t believe in timing the market but a strong believer in “valuation” and “growth” of companies whose securities he owns.His edge lies in his “analysis”.If his analysis turns out to be true, he makes money in the “long term”.Otherwise,he ends up losing badly.

A trader is usually an “opportunistic ” person who believes in inefficient market theories. He believes that markets are driven by human emotions like “greed” and”fear”,so no stock is fairly priced at any point of time. He tries to take advantage of these mispricing and tries to profit from the excessive “greed” and “fear”.

A trader lives in the realm of “probability”.He never uses words like “should” or “will”.Like the markets “will” do this.Or the markets “should” do this. It is always something “might” happen and it “might not”. He is always optimistic that a trade might work out but turns into a “realist” when it doesn’t.Thats how he always manages his risk and believes in cutting his losses. Traders take ‘directional” bets and also use some “leverage” to enhance their returns.Traders also use “market timing” techniques to get an edge in the market. A trader can choose to trade a “single market” or “multiple markets” like stocks,commodities, currencies,bonds etc. Trading multiple markets helps him reduces his risk.

Usually when we hear the word trader “trader” we start thinking of “short term traders or intra day traders ” who buy and sell 50 times in a day. I would like you to go back to Infosys Trend Analysis post where we have a “long term” trading system that just produced 5-6 trades in 10 years. So difference between a “trader’ and an “investor” is not dependent on time frames.It is rather the difference in their “thinking” and “attitudes”!

Next comes the category of people who calls themselves “investors” or “traders” but are actually gamblers. They say that they are in the markets to “make money” but actually they are in the market “for excitement”. They treat markets like a “casino”.They DO NOT have any EDGE in the markets.They look for new ideas everyday, they buy and sell lots of securities everyday. They DO NOT understand risk! They get on a “high” when they are winning and then they start to overtrade. This results in heavy losses and they get into “depression” when they lose money.In order to “recover” their money, they double their bets and lose even more! In the end,the market throws them out and they lose their money and confidence.They were never in the markets to “make money”,so they get what they come for!

So you fall in which of the above categories? What is your “edge” in the markets? Think over these questions before you commit money.
Comments welcome!

Great write up. You hit the nail in the head with this.

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Best Wishes!

Traderji

www.Traderji.com

Very true. After reading this, I am still not able to decide. I start my investment in Nov 2008. with Minimum investment of 50K. Earned around 5K in two months.

My idea is that I recovered all expenses towards Dmat account opening and other charges.

So I started long term Investing, Invested in Strong stocks like NTPC, Power Grid, Canara Bank, IOB, Rcom, Bharati , etc. Now my total investment is around 1.5Lakhs, Due to the Market crash I do stand in Loss, But as you said, I made investment in Right stocks and I am not in need of Money right Now(atleast for another 3 Years), So I stay invested.

I consider myself an Invester, who occationally try to trade to take few bucks(around 500-1500 range) when market fall heavily. when I fail to make profit, I turn the stocks into long term investment as I always trade only on strong stocks.

sagesurya,

A fluid way of expressing the 'Confusion' prevailing in the Mind-Set.

Asish

I request the senior boarders to define the role of ' EDGE' in market strategy and the tools to sharpen the "edge".

Smart Investors buy/sell based on Fundamentals backed by Technicals and bet more on belief a bit of hope.
Smart Traders buy/sell based on Technicals followed of good fundamental stocks rely more on statistics less rely on belief or hope

For both its important to have a well defined and deciplined strategy to metigate the investment or trading risk.

Gamblers no comment as they will gamble on every option avaialable to them and markets are the best to do so.

I am a gambler.

This reminded me of a Filmi song in the film 'Gambler' . In fact i used to hum the tunes ........... obviously in the loo.

Thank you very much, This is the best tip ever given to the beginners.
During the peak of the market, i entered to become an invester, then i thought i m trader rather than an invester, but now i reallise that i m a gambler, and i gamlbe more to recover my losses and make more losses, i've been alarmed recently and changed my way, so i do everything now thoughtfully.

Thank you very much... i hope this forum will help the beginners like me.

Plz look into appropiate hedging strategy .