Some people especially for novice have question why every time they buy stock and the stock goes down and every time they sell, the stock goes up in few days or few weeks later.
Their mindset is changed spontaneously from trading to investing and they end up collecting a lot of stocks.
This case should be okay if they buy stocks but if they buy option contract, they will lose money due to time decay in which the option contract will be worthless when the expiration day comes.
First thing we need to know before we buy some position is how long we want to hold this position.
One day, one week or even one year, it is because it will be different approach and different strategy how we enter the market.
For example, for investors, they would rather research the fundamental of particular company, whether the company still has room to grow or whether the company always creates new products, before they buy the share of the company.
Unlike trader, they would rather pay attention on the technical analysis than fundamental of the company.
They instead buy the share of the company even though fundamental of the company is not that good.
As long as, they can make profit on downtrend rally, they are happy and longest time they can hold the position is around 1 month.
One other important thing to know is whether we are willing to lose some money on our position because for investor, they are not too worried if their position is losing some money on the short term because they believe the longer they hold the position, the less money they will lose.
Unlike trader, once they think that their position goes against their prediction, they exit from the market right away with cutting losses and are ready to enter the other position.
This kind of strategy really play important role when it comes to the stock picks and no wonder why investors have different stock picks from the traders because they always in different perspective in the stock market.