Today, you’ll get a taste of trading, and what it can mean to be a trader. What is trading? Trading is an active style of participating in the financial markets that seeks to outperform traditional buy-and-hold investing. Rather than trying to profit from long-term uptrends in the markets, traders look for short-term price moves to profit in both rising and falling markets.
As a trader, one of the most important things you can do to improve your chances of success is to approach trading as a business. A successful trading business requires a strategic plan that covers your actual business and your actual trading. Your business plan will include things like short and long-term goals, the amount of capital you have available for the business and how you will set up your office. Your trading plan includes the details of trading: what you will trade and how you will trade it. Your plan should be so objective and concise that you could hand it over to another trader and they would be able to execute it exactly.
It’s important to understand that your trading plan is not simply a set of rules that you think will work, a list of setups that you are somehow fond of, or someone else’s plan. A good trading plan is one that you have researched, tested on historical data, tested in a live market, and continue to evaluate at regular intervals.
Successful trading involves more than reading a few articles or books. You should plan on devoting a substantial amount of time and effort before ever placing a trade in a live market. This can be difficult because most new traders are anxious to get in the market. While the research and time commitments may sound daunting, they’re a realistic and integral part of becoming a profitable, independent trader.
Many people who become interested in trading are first introduced to the financial markets through investing. The purpose of investing is to build wealth slowly over time. This is typically accomplished through a buy-and-hold approach: making investments – such as in a stock, ETF or mutual fund – and allowing prices to fluctuate over time. Investors “ride out” the inevitable downtrends with the expectation that prices will eventually rebound and rise over the long term.
After years or decades, the investment will, in many cases, increase in value and provide positive returns for the investor. Long-term returns can be further amplified by compounding through the reinvestment of profits and dividends. Investments are often viewed as a means of building wealth to provide stability and income during the retirement years.
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