As I mentioned earlier a plan is needed before making a trade, however, you must first identify yourself in which kind of investor are you. So we can make plans accordingly and follow them.
Which one of the following do you prefer?
Investor Types
- Day Trader
- Day in, day out. Do not hold any position for longer than a day. Usually making trades using indicators.
- Swing Trader
- Hold a stock for a longer duration, from a few days to months or even a year.
- Value Investor
- A person who believes in intrinsic value. Only buy “undervalued” companies with strong balance sheets. Some well-known investors who took this approach are Warren Buffet and Peter Lynch.
Really?
What you want to be might not be who you are.
When I first started investing, I read books about how to find the “undervalued company” as a value investor. However, looking back, my trading approach is not. This is a common phenomenon I’ve observed that happens in other people as well.
Ok, scenario time.
Say if you are a value investor, you shouldn’t sell it now even though it has already gone down 50% since you own the stock, right? Because you believed it could be multiple times years later.
In a way, this will be correct if it turns out to be what you thought years after or even decades later.
On the other hand, to prove that you are wrong, you have to wait for years or decades to know too.
Now ask yourself this:
- Why would you buy it in the first place if it is going to go down? Because you’ll never know? Because you are “value investing”?
- Why no stop losses were set to prevent you can being potentially wrong?
- Is the market being irrational and you are the right one?
If you can answer all these questions and you still insist on holding it. Great, then you are a value investor. If not, you are probably a value speculator. Swing trader fits your description better because you just added a time frame for the stock you hold.
Difference Between Value Investor And Swing Trader
The major difference between value investor and swing trader is that swing trader has a time frame and value investor has not. If any, it could only be “eventually”.
However, there are no strict rules that you cannot be both all at once, which I believe is the best approach.
A swing trader who picks an undervalued stock to trade the upswing has higher success rate than hoping for a crappy company to shoot up, no?
