Trading in the stock market involves risk, but if you know what you are doing you stand the chance of making a lot of money. If you don’t and are unwilling to learn and educate yourself, you stand to lose. You should expect a steep learning curve – just like any other endeavor you might try. You cannot expect to pick up a book or trading manual, read through it and 2 weeks later become an expert.
If you have not thought before of what trading the market is like, then the best analogy to consider is that trading is a bit like operating a small business. You have to commit your money to a particular opportunity when you start a business, and you use your knowledge and skills in assessing the chance that a chosen business opportunity will prove profitable.
A business can possibly fail, and many do, but the research you do in advance should make you confident that you will have a good opportunity make money. Sometimes you might lose money when running a business, but if you are good at it you will make more profits than losses and the business will be deemed successful. Trading is in this way just like planning to start a business, and if you are wise it will be your knowledge and research that will improve the odds for you winning over the next trader who does not prepare.
To be a successful trader running a day trading system of any kind, you need to work to understand the market in your area of expertise. Don’t be fooled into thinking that being a trader is easy and that money will fall into your bank account. Just like anything else you need to develop your own market appreciation as a skill and apply that skill to make money. In other words, you need to figure out what you are good at: Stocks, Futures, Options, or Currencies. Very rarely is anyone a master of them all, and there is enough data and tools out there you should be able to test the waters on each without risking actual money.
The good thing is most brokers now have fully automated sim trading systems – meaning you can try your hand at trading without risking any real money. Some of them, you dont even need to open an account, you can sign up and get the sim trader access. You may have to pay for live quote feeds, but this is no big deal. As with any business, you should expect some costs. DO NOT TRY to trade using delayed quotes because you don’t want to pay – if you are that cheap – go find something else to try, as there is no way you will succeed.
Traders can and do make money on in an up or down market, and the best of them use their own technically based (read: charts) analysis as well applying some fundamental principles of the market to make their profits. Traders of stocks have many and varied approaches to how they invest in the market – some buy on weakness, others buy on strength or any myriad of combination of the two. Some traders love the gambling aspect and like to take large gambles when they invest — however this is usually a recipe for disaster if you are not careful. What will emerge over time and through trial and error is a style of trading you feel comfortable with. Once you get more advanced, you can mix a bunch of styles in with ease. In the beginning, pick a style and stick to it until you find consistency.
If stocks are not your game, more action can be had by trading futures, options, or currencies. One thing to realize though is that these 3 are all leveraged, so potential returns are higher BUT so are potential losses. What I mean by leveraged, is you put up very little money compared to the actual dollar amount you are controlling. This tends to draw in people who don’t have much capital – but is also inherently higher risk because of this leverage. Many traders prefer to look for safer opportunities, and try to limit the gambling aspect of the whole thing – I would suggest that anyone seriously looking into trading limit the gambling aspect/appeal.
Both approaches are equally acceptable under certain circumstances, and it is, of course, the long term profitability over many trades that matters. The main thing is finding what works and then sticking to it.
Investors are slightly different from traders, and investors put their money into stocks over a longer period and they also get dividend as a reward in some cases for holding the investment. Sometimes companies also offer shares as a dividend (stock split) to longer term investors and existing share holders, as a bonus. However, although this is not seen as risky as short term trading in the stock market, investing can also be a dangerous, yet profitable endeavor. Usually the profits are bigger, as are the losses. You really need to brush up and become an expert on the fundamentals (balance sheet, earnings etc), as that is what drives 70% of investing. The other 30% is short term technical stuff that affects the prices.
Many people have been burnt (read: lost money big time) and decide not to ever invest or trade again, while others thrive and prosper. The main thing to realize before anyone starts trading is that although it may appear easy, there is a lot of knowledge and skill needed to become a profitable trader. So, don’t make the mistake of thinking that you can just expect to make money without first developing knowledge and experience, or accessing the knowledge of others within a trading system that you trust. You should start by getting a few good books on charting. Learn to become an expert at picking up on the short term trends in the market. Learn how to use various technical indicators to ASSIST you in finding ideas – do not let them replace thinking.
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