What is trading?
The dictionary defines trading as a form of exchange that takes place through buying or selling. In the financial world, people think of trading in more precise terms. Here, it is the process of buying or selling a financial instrument (such as a stock, bond, or futures contract) as a result of identifying (1) the direction of prices, and (2) specific price levels at which to enter and exit the market profitably.
How is trading different from gambling?
Gambling is the act of risking money on an activity that carries a high probability of financial loss. The probability of loss is due to inadequate understanding of the activity itself or factors inherent within the activity that make the likelihood of loss very high.
Almost any financial activity can be a gamble. Consider buying a car, for example. If you don’t know what you are doing, you can become the victim of a bad transaction. Similarly, trading in the financial markets can be very risky, if you are unfamiliar with how the markets work. Through proper training, however, it is possible to develop a good understanding of the markets and learn to respond to trading opportunities when the odds of success are favorable.
Unlike a casino, the markets are much too large, diverse, and complex to be controlled by a handful of individuals. So, the idea that the markets are configured to make traders fail is unfounded. Traders lose money not because the financial “deck” is stacked against them, but because they lack the knowledge and experience to play the game successfully.
How is trading different from investing?
The primary focus of traders is the short-term time horizon. Performance in the markets is measured in minutes, hours, and days. Investors adopt a long-term perspective in which weeks, months, and years become the horizon for market performance. In recent years, economic conditions have changed the way market participants view price activity. The buy-and-hold strategy which was popular for decades has become largely ineffectual. Thus, attentive management of market positions is much more critical to success than in times past.
For the most part, traders use technical analysis and investors use fundamental analysis. (Technical analysis is chart reading and fundamental analysis is estimating the worth of a financial instrument based upon economic outlook or company prospects for growth.) However, some traders base decisions on fundamentals and some investors use technical information. Technical analysis is the most flexible of the approaches because it enables a person to respond more quickly to shifting market conditions and because fundamentals do not apply at all times or to all markets.
What does it take to become a successful trader?
Learning to trade is similar to preparing for any other major endeavor. It requires time, money, discipline, patience, flexibility, and a noticeable desire to acquire the understanding necessary to perform well. Since trading is a skill-based activity, good training and mentoring are essential for development.
Becoming a successful trader also means approaching the markets with a humble attitude. Trading tends to attract independent people. While some independent judgment is necessary for trading, a stubborn resistance to change, preoccupation with “making things happen,” or need to feed off of market action drains a trading account very quickly. Successful traders adopt a responsive posture toward the markets, rather than assuming that market activity should bow to their wishes or meet their emotional needs.
Can anyone learn to trade?
Almost any adult can increase his or her understanding of the markets, if sufficient time and attention are devoted to the task. Since various factors influence how and when trading occurs, each person must decide on the types of trading for which he or she is best suited. Of course, the results of market participation do vary, just as the results of participating in any endeavor can differ in accordance with individual aptitude and effort.
Do I need to leave my current job to trade?
Certainly not. Trading is an activity that appeals to people from many different walks of life. It can be carried out occasionally (1-4 times per year), regularly (a few times per week), or frequently (several times per day). So, whether you have a job or not, trading is a possibility. One nice thing about our training is that it can be applied to trading activities in all time frames.