Investor or speculator?

To be categorised as an investor or speculator can be made at all levels of finance.

Traditionally an investor is a long-term contributor to securities that have undergone a rigorous fundamental analytical process.

Shudder at the thought, the traditionalists consider, that a technical trade can be anything other than speculative.

But Mr Market can sometimes be nuttier than a fruitcake, and most financial decisions are bets if taken for less than 20 to 30 years. (Graham, The Intelligent Investor)

Controlling ourselves

Investing isn’t about beating others at their game. It’s about managing ourselves on our own. And as we are pattern seeking animals we technically convince ourselves of a particular market flow where one does not exist.

We know that if we speculate instead of invest, we lower our odds of building wealth and raise someones else’s.

An investment is not based on fundamental or technical detail per-say but is the safety of principle that attracts an adequate return. It is (1) analyse, (2) protect and (3) performance that is satisfactory, not extraordinary.

In other words, an investor calculates and a speculator gambles; regardless of whether it is based on technical or fundamental information or taken over a short or longish period. 

Online investor?

To that end, arguably online trading can be either depending on our approach. 

Remember the investor will analysis, protect and target. 

The speculator treats online financial trading as a way to mint money, a nonstop commercial video game. They busy themselves trading the low and medium probabilities.

The ‘investor’ of the online financial trades looks for high probability trades.

Screenshot 1, investor

In the screenshot below a high probability, entry presents itself at the green arrow. The target is 30 pips distant and the stop 60 pips. Would we hold if the trade went against us all the way to the stop? Probably not.

In any case, the stop distance makes sense. The doji bar soon after entry made us question the trade, but six hours later we achieved our high probability target.

An investors high probability trade.
Investors high probability trade

Screenshot 2, speculator

From the following day, our screenshot below provides a different picture. We considered this a high probability trade and entered long where indicated. We measured bar 2 for a measured move target.

Bar 3 was short of the goal. At the close of bar 3, we set to break even which we achieved. If we had not fortuitously done this, we would have exited with a loss at the close of bar 4.

It was only afterwards in debrief that we knew that this trade was speculation. The investors stop, having to be so distantly disproportionate to the target is a giveaway.

The investors (high probability) trade was short at the close of bar 5. In this trade stop and target were in proportion. 

Not an investors trade as stop too disproportionate to target.
Not an investors trade, as it turned out

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