Differences in mentality of trader and investor

I have talked to a lot of people who confuse themeselves and fail to identify whether are they an investor or trader. In my point of view, it is extremely important to be clear and concise about this since the strategy used would then be totally different.

As a trader, you generate cash flow within a short time span such as a few days, weeks or even daily. However, the risk exposure would usually be higher since you would most likely be using leverages to achieve significant amount of profit. The amount of concentration and analysis is much more heavy due to the time factor to get your trade right. For an investors, you basically buy and hold till the right price to sell. You have the luxury of time to wait for your choice of stock to appreciate in value. The disadvantage of this approach is that you would require much more capital in order to realise profits that supercede your active income.

Alot of people who I have chatted with usually tell me that they are traders. However when suffered with a bad trade, they refuse to cut their losses and ended up giving excuses that they would pick up the shares as they are long term investors. My view is that if they are investors, they should have use a different approach to pick their stocks, like looking at fundamentals of a company, 52 week price range and dividend, etc. As a trader, we do not have the benefit of time in our trade and it is essential that we cut losses and focus on other more profitable trade.

To be honest, it will be much better for you to focus on becoming a good investor and not a trader if you are holding on to a full time job/ business. This is because stock trading requires a lot of focus and energy, it will not allow you to split your focus on to some other things.

Last but not least, the short term market condition favours the long term investors rather than trader. There seems to be signs of weakness to the rally in the market for the moment in the short term, whereas the long term trend of stocks are moving upward. This is a good time for investor to accumulate stocks whenever the market heads down, hold till prices appreciate to the point whereby the P/E ratio is above 20 and consider selling from then.