Just recently, I received a question from a reader regarding investor categories including which category performs the best in the market and which one is optimum.
Hopefully, this will provide some enlightenment on the matter and give you the reader some idea where you fit in the food chain. I will give you categories of market involvement to help you decide who you are in the investment game.In any share dealing I observe four categories of participants:
1/ The Trader: This person seeks opportunity in shares based on momentum and trend analysis. This person is more attuned to markets in general. Usually he/she will retain trading services such a trade advisory letter she subscribe to. Many times but not always this person uses a computer trading platform such as E Trade, Trade Station or Meta Stock. The use of trailing stops, stop buys and stop loss sell orders as market orders, not stop limit orders, are common to this strategy. The trader may hold a core position or may not, depending on the individual.
2/ The Active investor: This person approaches the share market with a respect for the market reality that no market reaches a high or low in a straight line. This investor generally attempts the simplistic approach of selling a percentage of his/her core position on a step ladder system into strength and buys back on weakness in the same manner. A step ladder order is placing sells or buys as a series or high for sales and lower for buys as the market moves in that direction. Since he/she is close to the trader in thinking, he/she will also retain a professional trading advisor but utilize the information less actively. Normally, this individual will or will not have a trading platform and utilize the stop order only as a stop loss market order.
3/ The Long term /Inactive Investor: This person takes a position and does nothing whatsoever. In a major bull or bear market, there is a rationale for this approach. The argument against it is that a person tenacious enough to hold through everything will generally also hold through the top of any bull market right into the following bear market.
As far as which investor does best, the following are the observations:
a. In futures or options, only the trader survives. Do not go anywhere near those market unless you are willing to be guided and do the work yourself as well.
b. The trader who is disciplined and willing to work does very well.
c. My personal opinion is the active investor can do as well as the trader.
d. The long term /inactive investor usually over stays the market and suffers badly as a result.
Determining "what is the optimum" investor is a very difficult challenge. Each person has to be what they are. The optimum is knowing what you are..
It is my opinion, the trader and the active investor do the best because getting out right is more important than getting in any major trend.
Thanks for reading……………………
