Investor vs Trader
How do you see the world?
Do you consider yourself an investor or a trader?
Most people think of themselves as investors. However, if you knew that big winners in the markets call themselves traders, wouldn’t you want to know why?
Simply put, they don’t invest, they trade.
What are Investors?
Investors put their money, or capital, into a market, like stocks or real estate, under the assumption that the value of the entity they invest in will increase over time. As the value increases, so does the person’s “investment.” Investors typically do not have a plan for when their investment value decreases. They hold on to their investment, hoping that the value will reverse itself and go back up.
Investors typically succeed in bull markets and lose in bear markets. This is because investors anticipate bear, or down, markets with fear and trepidation and therefore are unable to plan how to respond when they’re losing. They chose to “hang tight,” so they continue to lose. They have some idea that a different approach to losing involves more complicated trading transactions like “selling short,” of which they know little and don’t care to learn. If the mainstream press continually positions investing as “good” or “safe” and trading as “bad or “risky,” people are reluctant to align themselves with traders or even seek to understand what trading, as opposed to investing, is all about. Learn how to invest properly with our Investor’s Checklist.
What are Traders?
A trader has a defined plan or strategy to put capital into a market in order to achieve a single goal: profit.
Traders don’t care what they own or what they sell as long as they end up with more money than they started out with.
They are not investing in anything.
They are trading. It is an important distinction.
It has often said that a person is a trader whether or not they are actually trading. Some people think they must be in and out of the markets every day to call themselves a “stock market trader”. What makes someone a trader has more to do with their perspective on life than with making a given trade. (Learn more about becoming a full time trader)
For example, a trend follower’s perspective includes patience. Like the African lion waiting for days for the right moment to strike its unsuspecting prey, a trend follower can wait weeks or months for a trend. Ideally, traders go short as often as they go long, enabling them to make money in both up and down markets. However, a majority of “traders” won’t or can’t go short. They resemble investors in that they struggle with the concept of making money when a market declines. One way a successful stock trader makes money when the market is decreasing is by short selling.
No matter what trade you make, a pure discipline (mental preparation and risk tolerance) is required through a written plan which will help you set reasonable expectations to offset manic highs when success is found and depressive lows when inevitable losses occur. Your trading plan would then be require to review from time to time to reflect the changes in market sentiments and directions.
So which are you – and investor or a trader? Which one do you think is better to become financially successful? Leave your comment below!