The world of financial markets is one that transforms rapidly, where the pace of development is unmatched. Be it floor shouting or algorithmic execution, the pace at which we advance is something no one can fathom. However, trading at its core is still a balancing act composed of strategy, psychology, and risk management.
Familiarizing Yourself With the Fundamentals
With the words from above in mind, trading can be defined as the act of buying or selling financial instruments including stocks, forex or even commodities with the intention to make a profit. Investing on the other hand focuses on a long term horizon. Unlike investing, which focuses on long term prospects, trading targets the short to medium term movements of the market.
Broadly speaking, trading can be classified into the following types:
Day trading: Executing both the buying and selling transactions within a single day.
Swing Trading: Maintaining the positions for a period of several days so as to be able to capture short term movements.
Scalping: Buying an asset and selling it off a little later for a small profit, dozens to hundreds of times in a day.
Position trading: Trades are held up for weeks, even weeks or months to be able to capitalize on a long term trend.
Strateg – is Often Reffered to as End Goal
The same way we have been discussing, a good trading strategy encompasses one of the most important guides including;
Entry and exit rules
Risk-reward ratio
Market selection
Testing with historical data
Some of the go to strategies traders use include: following the trend, breakout trading and mean reversion. Those are handy tips for traders who try to find a system that works for them.
The more complicated aspect of trading are the hidden factors that come into play. Even with a sound strategy, emotions which include the fear of losing money, impatience and greed have the potential t
o lead to poor decisions.