What’s in a name?
Trading and investing can mean different things to different people, so let me share with you the way I define these terms.
I’m sure the dictionary and tax office will have alternative definitions, but to me it’s about the involvement of the trader in actually trading.
Let’s start by looking at decision making.
To me, a trader is someone who… makes their own decisions about what to trade and when to trade. They identify each trade themselves by following a backtested trading system as part of a trading plan with money management in place.
If they are trading without a plan, then I’d consider them to be more of a gambler than a trader.
On the other hand, someone who takes a more passive approach by waiting for someone else to identify a trade is what I would call an investor. After all, they are investing their money in someone else’s strategy, not their own.
It’s the difference between being in the driver’s seat or sitting alongside in the passenger’s seat of a taxi. If you aren’t holding the wheel, then you aren’t the driver.
Don’t get me wrong, there’s nothing wrong with being a passenger. It’s a lot less work and you can still get to the same destination. But, you are trusting that the taxi driver knows which way to go - and you’ve usually got to pay them for driving you.
Next, we’ll take a look at time frames.
I believe a trader is actively trading. By that I mean that they are monitoring their trades and markets on at least a weekly basis. Depending on the type of trading they undertake they may be in and out of a trade in minutes, hours, days or weeks.
An investor though would tend to trade positionally, and have a longer term view. They are more likely to be using a buy and hold strategy, and expect that healthy dividends are paid.
Lastly, it doesn’t matter what market is involved; whether it is shares, warrants or options on the stock market, or CFD’s, Futures (E-Minis), Forex (currencies), or commodities. You can be trading or investing in any of them.
So what is the point I’m trying to make here?
It’s simply this… it doesn’t matter whether you consider yourself to be a trader, an investor or a gambler, as long as you realise that the responsibility for your trading rests solely with you.
It’s important for your mindset and trading psychology to acknowledge that however your trade was placed, whether directly as a result of your fundamental analysis or technical analysis - or indirectly by following someone else’s leads, that the original decision to take action was your own.
It’s in your best interests therefore to make those decisions as informed as possible so that you can trade profitably.
Happy Trading,
Brian Dibbins
Trade Profitably © 2006 - 2007
15th June 2007
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