Billions of dollars change hands on the stock market, forex market, commodities markets, futures markets, and precious metals markets each day; yet, many people complain about how hard is it to make ends meet because of the current economic clime. One would have thought that it would be very easy to make money from the financial markets, but sad tales abound from those whose have ventured into trading stocks, forex, futures, or commodities only to be burned as they lost all or part of their trading capital.
In a bid to know why most people who venture into the trading market often return with losses and sometimes debts – I had an eureka moment on why many people never make it in the forex or capital markets. This piece seeks to explore the singular distinction you must make in order to succeed in the financial markets.
Traders are Not Investors
Many people who enter the financial markets with the hopes of improving their finances (in the short term) often enter as traders, the problem however is that they start acting as investors – repeat to yourself “Traders are Not Investors”. If you want to trade, Trade-24.com provides you with a platform to buy and sell forex, stocks, and futures.
Traders buy a security, currency pair, precious metal, or stock because they can sense a price movement that would “correct” the price of the security in their favor. They can sense the potential price movement from economic news, technical analysis, or tips from “sources”. Traders want to make profit from the price movement, sell, and move to the next trade. Traders have no interest in the stock, currency, or commodity other than opportunity to buy low and sell high.
Investors buy a security, currency pair, stock, or precious metal because they have great confidence in the LONG TERM PROSPECTS of the investment. Investors typically hold their investments for years and decades. Investors typically profit on the compound power of price appreciation in their investments as well as the reinvestments of their gains. Investors typically have a sense of connection to their investments – folks who invest in forex usually have a patriotic attachment to national currencies.
Should You Trade or Invest
Traders and investors often have the same goal – the goal is to make profits on their trades and investments, no one enters a trade with the aim to lose money. The main difference between traders and investors is that they have set different time frames for when they want to record the gains – traders have a short-term outlook while investors have a long-term outlook.
If you want to be a trader, you must be disciplined enough to make logical trading decisions based on what your trading strategies and signals suggest. Richard Campbell, a trader on Trade 24 notes that “some day traders might be in front of their computer screen all day without executing a single trade because they couldn’t find an entry signal”.
As a trader, you must be ready to exit a winning trade at the sight of your exit signal even when it appears that the gains might continue – traders should never make the mistake of falling in love with a winning trade such that they stay in the trade longer than necessary.
When traders fall in love with a winning trade, they end up as investors who have not learnt the art of investing and it doesn’t usually end well. Traders should also be ready to exit a losing a trade as quick as possible in order to cut losses – smart traders don’t stay in a losing trade in the hopes that it will turnaround.
Being a trader is not necessarily better than being an investor; neither, is being an investor a better option over being a trader. However, you must avoid being an investor and being a trader of the same currency pair, stock, or security at the same time.