Potentially getting higher returns on their capital is one obvious reason why individuals would rather trade than invest. Squeezing every last bit of profit out of the market is more important to the trader, than the cautious faith-in-the-fundamentals approach taken by investors. This profit chasing by traders does come at the expense of more work, and potentially higher risk though. All traders play an active role in their portfolios, even when all they are trading in is mutual funds of other stocks, or direct shareholdings. Instead of riding along as the market moves up and down, traders will try and get on at the bottom, and sell at the top of every short term market cycle.
Despite the greater effort, and increased risk, a lot of people choose to be traders, and many of them are very successful too. Unfortunately, today anyone with capital to invest can be a trader, and many people are, even without adequate preparation or understanding of what it takes to be a SUCCESSFUL trader. Successful trader too, come in different shapes and sizes, and employ different trading strategies. That said, there are some characteristics that are common to all successful traders.
Successful Traders
Success in trading requires discipline. Clinical assessment of the trading opportunities, and outcomes of various strategies. Sticking to successful strategies even when they seem to fly in the face of your own natural tendencies or emotional hangups is essential. Second guessing yourself is one guarantteed way to lose money inthe market. A lot of the trading opportunities are profitable only if acted upon in a short window of time. Reacting very late to a trading opportunity due to indecision is usually worse than not trading in the first instance.
Successful traders have separate strategies for entering and leaving a particular position, whether that be buying long, or short selling. You need to decide, even before you buy a share, what conditions have to be met before you sell. Those conditions might be a loss of x% on the trade, or indeed a profit of y% on the trade. Buying without a plan, hoping that the market will move in the right direction, and holding on indefinitely for that move to happen is not very different from investing. However, with the shorter timespans, as well as leverage and margin calls, traders can lose their capital much quicker than an investor when the market temporarily moves against them. That is why a lot of traders do emply stop-loss points to limit their exposure and losses when the market moves against them in a particular trade.
Cash management is key to any trading strategy. Having enough money on hand to meet margin calls, and make swift trading dips into the market does separate those traders beating the averages, from those that quickly lose their shirt and return home. Not making your margin calls, and being forced to close your positions can totally wipe out your capital. Losing some money, but preserving your capital means you can survive, and can always reenter the market when you think conditions are improved or more suited to your trading strategy. Know when to quit.
Understanding the markets, and the trading tools is essential. This seems self evident, but it is amazing that a lot of people will still embark on a trading spree with only a cursory understanding of the mechanics of the markets, and barely a glance at the software and trading platforms that they use. Needless to say, they do not survive very long in the market.
In summary, logic and clear plans, coupled with a good understanding of the tools of the trade, do win the day when it comes to trading on the various exchanges across the country.
Investment/Trading