One thing that determines what strategies you need in the market, is whether you are a Trader or an Investor. They both have a goal of making money, but the means at which they approach things is completely different.
An investor should consider his long term goals and structuring investments to achieve those goals. An Investor could be using fundamental information to determine the current value compared to the target value the analysts have on the asset. They may be buying on the way down, in the hope that proper value will return to the asset creating a capital gain. Owning a good quality company which has been under performing is often the goal. As an investor its important to look at asset allocation for diversification.
A trader will have a set of rules or triggers that cause him to act in the market. This may be very simple (like the crossing of a moving average) or very complicated with multiple rules and conditions. A trader will primarily be using Technical indicators to make decisions on the market.
As a Trader, your rules will determine the duration of your trades – with more aggressive rules, trades will be shorter in duration with faster entries and exits. With more conservative rules, entries and exits will be slower resulting in longer trade duration’s.
More aggressive conditions will trade more often, looking for smaller moves to take advantage of. More conservative conditions will trade less and require more evidence to enter (so will be slower). Its important to think that the speed of entry must match the speed of exit. Entering fast and not taking profit will lead to frustration, as will entering slowly and exiting fast. So entry and exit rules must be reasonably balanced. Think of a golf swing, a short back swing has a short follow through – a big back swing has a big follow through.
Traders and investors may also use different products to increase returns – options, warrants, CFD’s or futures increase gearing into investments as margin loans. As a rule of thumb, higher geared products are generally more suited towards traders than investors.
So which is right – that really depends on your mindset, your discipline, your confidence and your availability of information. Both traders and investors can be active in the market using very different strategies.
Whichever you are, make sure the strategies you use fit in with your goals.
Happy trading/investing 🙂