When it comes to becoming successful in anything you do, one of the most important factors is the mindset. If your mindset is not in the correct place then that would lead you to do things that are not optimal without you realizing it. The same can be said for the stock market. Many go into the stock market without a strategy suited for their mindset or don’t even know what investing mindset they have.
In this post, I’m going to introduce the two mindsets (investor and trader) that an individual can have. Hopefully, by the end, you’ll have a better idea of how the two mindsets work and which one you are.
Disclaimer: None of what I’m talking about should be considered as financial advice. It is only for entertainment and educational purpose only.
Investor Mindset
The investor mindset is commonly misunderstood. Often, people believe they are under the investor mindset as long as they participate in the stock market. However, that is not the case. There are unique characteristics for an individual that falls under the investor mindset:
- Focus on the long-term narrative
- Time horizon is in months and years
- Emphasis on the importance of fundamentals over the price
- Have a concentrated portfolio
Trader Mindset
The trader mindset works under the mantra of entering and exiting the market frequently. There are unique characteristics that are under the trader mindset:
- Focus on the short-term narrative
- Time horizon is in minutes to weeks
- Emphasis on the importance of price movement and direction (price action)
- Value the charts over fundamentals
Difference Between the Investor and Trader Mindset
There are some key differences between the investor and the trader mindset. When it comes to the time horizon, an investor focuses on the long-term while a trader focuses on the short-term. A trader sells stock frequently while an investor rarely sells their stocks. If they do sell, it probably has been years since they bought or the fundamentals have changed. The determining factor to sell a stock is the price for a trader, while for an investor it is the fundamentals (narrative).
Which One Is Better?
Both the investor and trader mindset have their pros and cons. Which one is better really depends on you. The mindset that fits your characteristics the most is the better one. You have your strong points and weak points and the one that fits your strong points the most will yield better results.
Once you figure out which mindset you are, then it comes down to practice. You’re not going to be an amazing investor or trader at the start. Instead, expect to have failures and figure out where your mistakes are to learn from them.
Now, there is the possibility that you have the characteristics of both an investor and a trader mindset. In such a case, you can try out both and see which one you prefer more. Personally, I do both investing and trading, but I learn towards investing more because of the time commitment for trading. The more passive nature of investing and having to just follow a few companies closely is better than staring at the screen constantly at least for me.
To wrap up, there is no such thing as a 100% winning formula when it comes to the stock market. At the end of the day, it all comes down to probabilities. When you know whether you have an investor or trader mindset, you can look for opportunities that align with your style. As a result, you have a much higher chance to have a winning trade or investment.
I hope this post was helpful to you. If you found this post helpful, share it with others so they can benefit too.
If you’re new to investing and need a guideline to help you start your investment journey you can check out my post on setting yourself up for financial success. I also have a post about beginner mistakes to avoid in the stock market.
To get in touch, follow me on Twitter, leave a comment, or send me an email at steven@brightdevelopers.com.