Trader / Investor

Who is a trader ? One who keeps churning portfolio (or has no portfolio at all), fixes a target and sells or keeps a stop-loss and gets out. Simple ? But, what is required for you to become a trader ?

1. Trend is your friend.
2. Price and Volume are all you need to know. Whether it's a X stock / Y stock / Z stock is not your problem.
3. Momentum and liquidity are your companions.
4. Be quick to act and even quicker to react.
5. Ability to control emotions and attachments.
6. Never turn trading calls into investments.
7. Never Average down.

For an investor,

1. What price the market gives in the short-term is unimportant.
2. You need to know EVERYTHING possible about a company.
3. Your best chances of accumulation are when nobody even know that the stock exists.
4. Crashes and corrections are part and parcel of market. The time before a crash is your best chance to sell and the time after crash is your best chance to buy. Buy when everybody is doing distress sale and Sell when everybody is out to get a piece of the pie.
5. Crowd is mad and you are not. You have no emotions.
6. Never take a short-term call on a long-term bet.
7. Average down. So, whenever you sell, your average cost for the balance decreases.

For a trader, money management, lot sizes, technical analysis are those which matter most. A trader should not be compulsive. If there are odd days in which one cannot trade, better skip the trading and have some life. There will be days in which you lose. For a trader, it is imperative that when he wakes up, he comes fresh - still remembering why he lost money, but not the hurt. It is also important to remember that the day after losing is not the day to "compensate", but to apply better techniques to avoid losing in the future.

For an investor, day-to-day fluctuations hardly matter. It is important to have patience, knowledge about each stock in the portfolio, to be open to all news flow which is likely to affect stocks in portfolio. You must always remember that Sensex is just a group of 30 stocks and your own portfolio while being affected by movements in the Sensex is not going to track the Sensex itself. Your buy/sell decisions should never be based on where Sensex is, rather by the value you pay or get for a company.