Saturday, July 29, 2006

Investor vs Trader: How Do They See The World

Investors are different from traders. They put their money into a market, like stocks or real estate under assumption that the value of the entity they invest will increase over time. 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 market with fear and therefore are unable to plan how to respond when they're losing. They chose to 'hang tight', so they continue to lose.

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.

What Type Of Trade You Would Do In Bursa Malaysia?

Day Trade (Intra day 1min - 3hrs)

- Prefer pattern or sign of follow-through.
- Tight risk control (mentally strong, take profit fast & cut-loss
even faster).
- No overnight position (no long and short position).
- Trade in heavy size, eg: 1,000 - 10,000 shares.
- Timing the market entry and exit is very important.

Swing/Trend Trade (1-10days)
- Prefer to watch for clues on how stock are open and close.
- Follow trend and business news closely.
- Doing research on fundamentals and technical analysis.
- Holding long and short position.
- Prefer to identify sweet spot and let the profit run.
- Execute cut-loss at specific percentage of price level.

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.

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