Both traders and investors use technical analysis. So what’s the difference between a trader and an investor? Most people consider that a trader is someone who holds securities for only a short period of time, anywhere from a minute to a year. An investor is someone who holds securities anywhere from many months to forever, depending on whom you ask. Holding period is not the only factor, though. You may think of an investor as someone who also seeks income from dividends or bond coupon payments, and the timing of those payments influences the investor’s holding period, too. Actually, the dividing line between trader and investor isn’t fixed (except for purposes of taxation). Be careful not to fall into the semantic trap of thinking that a trader is a wild-eyed speculator while an investor is a respectable guy in a pinstriped suit. I use the word trader in this book, but don’t let it distract you. People who consider themselves investors use technical methods, too. You can use technical methods over any investment horizon, including the long term. If you’re an expert in Blue Widget stock, for example, you can
add to your holdings when the price is relatively low, take some partial profit when the price is relatively high, and dump it all if the stock crashes. Technical analysis has tools for identifying each of these situations. You can also use technical tools to rotate your capital among several securities, allocating more capital to the ones delivering the highest gains. At the other end of the investment horizon spectrum, you can use technical analysis to spot a high-probability trade and execute the purchase and sale in one hour.
Barbara Rockefeller
Technical Analysis for Dummies
Wiley Publishing, Inc.
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