Dear investor, have a bit of the trader in you

Sep 26 2011, 11:02 IST
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SummaryHow would you view this seesaw completely depends on who you are.

Dear investor,

As I write this column, I am reminded of Nifty at 5,700 levels around 26th July, the 900 point free fall that went all the way to 4,720 levels around 26th August and the rebound to 5,100 plus levels till a few days ago and again a sharp 209 point fall on September 22.

How would you view this seesaw completely depends on who you are. Would you identify yourself as a stock market trader or a stock market investor, or both? What should you be during these “uncertain times” when the capital markets are keeping everyone guessing on the direction they may take?

The classical trader is one who tries to profit from short-term price volatility with trades lasting anywhere from several seconds to several weeks. They are professionals in the art of trading. A trader has a defined plan to invest capital in the market in order to achieve a single goal: profit.

They seldom care about what they own or sell as long as they end up with more money than they started out with. Trader strategies are largely driven by market momentum. They may go long or short, enabling “moneymaking” in both the upswing and downswing.

Traders watch trends patiently and sometimes wait for weeks watching and studying market moves before making one of their own. One could well compare traders sometimes to a cheetah that watches the movements of its unsuspecting prey for weeks before making that one leap. Abundant patience, high level of risk tolerance and strong mental preparation are virtues of a professional trader and unless you painstakingly acquire these qualities, you are better off staying away from the stock markets.

Investors purchase stocks with the intention of holding them for an extended period, usually several months to years. They rely primarily on fundamentals for their investment decisions and fully recognise stocks as part-ownership in the company. Many investors believe in the buy and hold strategy, which implies that investors will buy stock and hold onto them for the very long term. On the face of it, for an investor it looks as simple as identifying a value stock, invest in it and hold on to it for years and encash the rewards.

Indian capital markets seem to be heading towards the third wave of a bull rally, which according to research experts could last much longer and of a

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