Have you asked this question to yourself? One might think that these two are one and the same. Because functionally the playground is same. But T20 needs different strategies than test cricket.

It takes some self analysis to come to the conclusion. Some basic questions would be

1)When you buy a stock what makes you take a buy decision in a particular stock on a particular day and time?

2)What is the time frame in your mind about holding the company you are buying?

3)How important is the time frame and how much you are dependent on the money invested?

4)What will you do if the stock you buy starts downward movement rapidly?

5)What will you do if the stock you bought starts going up rapidly?

6)How will you distribute your capital?

7)How much loss you can bear?

8)What is the strategy you will apply if loss is going beyond your limit?

9)What are the criteria for selling the stocks?

Whether you are a trader on an investor we must know the answers to above mentioned questions as those answers will guide us to be a successful market player.

Now an investor is an individual who would be more interested in knowing what is happening to the business of the stock he is invested in. He would study all the possible sources of information. Dig in through the annual reports available over the years and engage himself into the calculations based on the analysis.

It is also an important characteristic of the investor to put a long wait for the value he wants to put his money in.

For an investor buying decision is not an impulse or induced through just a momentum in price but by a cautious approach on the conclusion based on his study. Buying is often spread over a period and value confirmation.

Once the investment is done, the investor is not in a hurry to sell it with some percent gain. He will wait and enjoy the passive income too. His job is then to see if there is any major thing happening affecting the valuation of the company. E.g. some contingent liability like penalty out of lawsuit arising that can affect the profit margin and sentiment in general.

If all goes well then the investment will grow over a period (generally more than 2 to 3 years) and will also generate handsome income through dividends.

Markets will go up and down and so will the stock price. This does not bother the investor as long as the fundamentals are in place.

He won’t look for minute to minute price changes but will go for weekly closing review in case he wants to reaffirm the price direction.

The investor will look into the economical development, Central banks’ decisions, macro economical changes to become his guide.

Above discussion does not mean that there is absolutely no loss if you are an investor. Loss is an unavoidable phenomenon in the stock markets. It matters when you decide what is the limit of the loss. Loss making stocks should not be permanent residents of your portfolio. Sometimes even though you as an investor analyze well but some things are overlooked; either because they are too complex to understand or you are not proficient enough to understand those flaws.

So what do we do when the prices fall beyond our anticipation?

Here we need to revisit the analysis and bow down to the falling prices and save our capital by taking some loss.

We can never fight the market for falling prices, no matter how good we are in our analysis.

An investor should also be aware that there are major down trends in the market after a great bull rally. The duration of the rally may be few years but it does not mean that the rally can go on forever.

There are always forces present in the markets with self destructive nature. For e.g. if increasing liquidity fuels the equity investment and in turn demand, the stocks rally and this same liquidity can fuel the inflation too after certain time period. This is a trigger for decreasing profit margin. A knowledgeable investor would watch these developments carefully and secure his profits before it all reflects in the stock market movements.

So selling is an important aspect of investment at proper time. This is so because when markets go into downtrend same stocks will be available at a very less valuation.

Trader also has a lot of understanding of the markets from his perspective.

A Trader does not get attached to the stock in terms of the business or company fundamentals. He is largely a technical analyst. He is continuously looking for a trigger to put his money into any position where there is momentum. This process is speculation.

Trader has to worry about the time as these momentum triggers normally don’t last long.

So what does a trader look for while putting his money in?

He simply looks for an opportunity. It is supported by news items, stock market volumes, some technical pattern or earnings related announcement by the company. But clearly it is upward or downward momentum which makes him to take a trading call.

It is of utmost importance that the trader is following some sort of strategies and discipline.

This is required as time plays a crucial role in decision making. A purely speculative position has very limited life span. For e.g. big order news for L&T is surely a good news but when it hits the markets, traders catch the opportunity and the stock moves up 2 to 3 % in a day.

The catch is the “big order” is yet to be realized in the book and its impact on the earning is a long story. So if trader is trapped for more profits and does not exit the position L&T fundamentals in the current situation may drag the prices down.

Can you cut your losses short?

When your prediction as a trader goes against you and you are losing on the position, then the decision should be quick to exit from the position and cut the losses. That is why keeping a stop loss is very much essential when u trade

This situation is tricky and psychologically very challenging due to the very dynamism a trader wants to use.

The time again can go against you if you don’t cut your position. The trader then converts himself into investor to make the position profitable. Here this can prove a wrong decision as trader has not studied the fundamentals.

In conclusion both Investors and traders have key roles to play in the markets. While the traders are necessary to infuse liquidity in the markets, investors are also required as they generate long term capital appreciation over a period of time.

Traders fuel speculation in the markets which is essential for the volatility and liquidity angles and hence although this is essentially of short term nature it is required as otherwise the market movement would get rigid and would not factor in dynamic events in the markets which are the lifeline for its healthy existence.