Are you an investor or a trader ?
Every time you think of entering the stock market you need to know yourself. You need to ask yourself whether you are an "investor" or a "trader". Investing and trading are two very different methods of attempting to profit in financial market. While trader and investors both participate in the same market, they perform task using completely different strategies.
What an Investor does ?
An investor does a proper fundamental analysis. He/she calculates the growth of the company, its future prospects, industrial performance, management efficiency, Corporate governance. He observes how well the company is complying with the government rules and regulations. After analyzing all aspects of the company he/she parks his funds in such a way that he/she is not going to touch the stock for next certain number of years. He/she thinks the company as his own company. The time period for investment generally starts from 2 to 5 years. An investor gives the company a time to grow the business and become stronger. If the company doesn't perform well for the given time period, he/she reviews the portfolio and makes the necessary adjustments.
What a trader does ?
A trader generally buys the stocks for the purpose of capital gain. Where investors seek for 15-20% annual return, traders seek for the same return in a short time frame. The trading profits are generated from buying low and selling high. They usually employ technical analysis tools to find high profitability trading set-ups. The traders don't get emotionally attached with the company, rather sell them off once they get the desired result. Stock traders typically concerns themselves with Price pattern, Market Emotion, Supply and Demand etc. Ultimately, it is the trader who provides the liquidity for investors and always take the other end of the trades.
Thus both traders and investors are necessary for a market to function well. Where traders provide liquidity for the investors, investors provide a basis upon which the traders can buy and sell. However, One needs to clearly find out whether he/she is a trader or an investor before entering the market.
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