Stock Trading Personality - What is yours?

by Eddy K

Before we put any money into the stock trading, we need to define our stock trading personality.

1) The first step in this process is to determine whether we are traders or investors. When you know your trading personality, you will know type of stock trading plan and strategies to employ.

Investors adopt a "buy and hold" philosophy. They hold positions for a long period of time. This can be weeks, months, or even years. Traders are different. They want to make money yesterday! Traders hold positions for days or weeks and in some cases for just a few hours.

Investors and traders use many of the same tools and techniques, but they adapt them to their stock trading personality and timeframe. The timeframe used is sometimes chosen for us.

For example, if your profession or job does not allow you to monitor the market during the day, it will be very difficult to function as a trader, even though your personality may pre-dispose you to active stock trading.

Investors choose solid quality stocks because they will hold their positions for longer periods. They use fundamental analysis to select stocks that have strong ratings and a promising long-term outlook. Investors are not concerned with the daily price fluctuation because they know that they own fundamentally strong companies that in the long run should eventually go up in price.

2) Traders on the other hand can chose a style that matches their own personalities and risk tolerance. A day-trader is one who is in and out of a stock in one day and never carries a position overnight. Relatively few traders can function in this stressful environment for very long. Most traders fall into the categories of swing, momentum, or position stock trading.

This individual usually does their stock trading from a few days to a few weeks, depending upon the market. They let the prices determine entrances and exits. The fundamentals are not as important to a trader as they are to an investor; price movement takes precedence.

Both the traders and investors can make good use of technical analysis to determine the timing of their entries into the market, as well as accurate exits. However, precise entries and exits are of more importance to traders than to investors.

Both investors and traders should monitor their positions on a daily basis. Neither need spend more than thirty minutes each day tracking and evaluating their portfolio.

Traders who decide to do stock trading full-time to make their living must decide whether they are willing to make the time commitment to follow the market intra-day. This does not mean that they are glued to the computer following every stock tick. However, there are decisions that often must be made during the course of the market day that will affect their positions. The fact that we follow the market on an intra-day basis does not mean that we are day traders.

Most traders are also investors, although the reverse is not necessarily true. Even traders who normally hold positions in their trading accounts for a few days at a time typically also manage their retirement funds in an IRA or other retirement plan. These accounts are normally not actively traded, so you might say that those of us who have both types of accounts have a "split personality." This is not a bad thing; both disciplines have much to offer.

The investor who does no active stock trading might do well to learn the disciplines of active stock trading, particularly in the area of technical analysis. The time may come when their investments will grow large enough that they can choose to quit their day job and trade full-time. The ability to monitor the market during the day may allow them to reap the benefits of active stock trading, provided their personality allows for it.

Whether you consider yourself a trader or an investor, make sure that you learn well how to make good entries and exits. Discipline is very important to stock trading. It does no good if you buy the right stock after it has made its run, and sell it to close at the same price.

The other discipline that applies to both traders and investors is proper money management. It is impossible to overemphasize the importance of the use of stop loss orders. It is also vital to know your targeted exit point before you enter any trade.

Investor or trader - which is better? Whichever fits your personality, risk tolerance and life style. Don't let anyone tell you that you should be one or the other. Examine yourself, and do what lets you sleep well every night.

The best thing is to have a proper and yet effective strategy to trade stocks more successfully before embarking it as a stock trading career. One of the best online course I have come across is The Way To Trade which you can get by clicking here.

Remember, pursuing a career in stock trading is like running a marathon, slow and steady. A lot of stamina and enthusiasm is needed to sustain you. More importantly, you must enjoy the process and journey of success! If you are not getting the results you are getting in stock trading be sure to check some course.

About author:
Eddy owns a few blogs on option trading and online stock trading and stock trading.

Published under category : Stock Trading Psychology