Historically, trading was the preserve of a few banks and financial firms. It was only open to institutions that had pockets deep enough to access the trading systems which were generally proprietary, and closed off to the masses. Recent advances in technology though, have led to a more level playing field, opening the field of trading to the average individual. Since the crash of 2000, when a many of these institutions lost a lot of investors’ money, individuals were faced with the option of either leaving the stock market entirely, or actually taking a more direct control of their portfolios.
Investment
Following the crash of 2000, the old notion of buying a stock and holding it forever seems to have died as well. There was a resurgence in the following years, but the crash of 2008 probably put the final nail in that coffin. Most people now, have the time and technology to be able to seek out alternative investment strategies, including active trading. The basic principle of buying and holding still remains, although this has been tempered with a more critical, active and regular review of the overall holdings.
There are several different kinds of traders found on the markets today. The more risk taking kind who have taken to trading on a full time basis are generally to be found at a day trading desk. The idea is never to hold any securities overnight, merely dipping in and out of the market to profit from daily fluctuations in price. It is quite unfortunate though, that this form of trading is what springs to most people’s minds when they hear the word ‘trader’.
A slight variation on the day traders, are the swing traders, who do hold positions in stocks for a few days, or weeks, in order to profit from general swings in price. A lot of swing traders are full time traders, managing their portfolios from anywhere they have a computer with a fast connection to the internet.
The final, and more common type of trader though, is the position traders. Position traders move in and out of stocks, holding them for weeks, months, and sometimes longer, trying to profit from the individual company, and general economic trends. This trading strategy sits squarely between the day traders, and the old buy-and-hold-for-life strategies.
Like any endeavour worth pursuing, it is very important to have the right tools before you start trading. These tools include a knowledge of the various exchanges and markets available to you, and and understanding of the different brokers and brokerage accounts available to the individual trader. Also important in these modern times, is the right computing equipment and software, and associated services such as high speed internet access.
The internet in particular, is not only the avenue to the exchanges, but also provides access to a wealth of trading resources, such as different market feeds, news, and historic data. An often overlooked benefit of being online too, is the ability to communicate with other traders, and join a fast growing community of individuals who think they can do better than the money managers.
The best tools though, are not enough to guarantee a profitable trading career. If that were the case, we would all be in an arms race to buy the latest and the best trading related gadgets out there. What separates the winners from the losers in trading, is the discipline to apply the tools and knowledge you have, towards developing a profitable trading strategy.
Successful traders have developed trading styles that suit them, and will also avoid getting caught up in the emotional roller coaster that is trading. As in any demanding profession, calmness and logic will always triumph over excitement leading to irrational exuberance. The same rules that apply in business apply in trading. Some of these include having a strategy, setting measurable goals and targets, evaluating results and refining methods, and above all consistently learning and improving.
In summary, actively trading your portfolio is now a viable option for any investor, even those who are risk averse, but do wish to see greater than average returns on their investment portfolio.
Investment/Trading