You have decided to try your luck in trading commodities or stocks, but so called experts tell you that you will need to ascertain your trading objective. Just what does this mean and why is it important? Well, it is really a matter of your trading philosophy. A trading goal basically identifies the horizon where you have chosen to trade. As an example, a day trader will have completely different set of goals and objectives than will a long term investor. They look at the market through different sets of glasses and it can be quite dangerous to your trading accounts to attempt and mix and match trading styles.
Let us first look at the most frequent trading goal – long term investing. Long term traders are usually more worried about business fundamentals such as earnings, annual growth, and earnings to name a few. They may use some technical indicators like price graphs and charts to help time their entrance points, but principles are typically more important to them. Long term traders are searching for that home run trade which will pay huge profits. Thus, they may be right no more than 20-25 percent of the time and remain earn a great profit. They’ve been known to maintain a given stock for many years.
The opposite end of the trading aim is the day trader. Day traders enter the market each day searching for quick smallish movements of less than a point – called”scalps”. They use technical graphs exclusively and typically buy big positions that they frequently sell within minutes. Their profits on a particular trade is a lot smaller compared to those a long term investor could normally make, so therefore day traders should have a very high winning percentage of transactions – usually 60 percent or more to achieve success.
These trading goals are two extremes and are discussed here to illustrate an extremely important point. If a day trader requires a position based on short term indicators from a graph or other technical indicator, it would be a massive mistake to alter that trade to a long term investment since the trade setup was not predicated on a long term trade. Inexperienced traders will often do this when a brief duration or swing trade goes bad. Rather than cutting their losses simply by selling the position, they change it into a long term trade trusting that the position will become profitable. DO NOT alter your trading goal – stick to you trading strategy. This rule will protect your account.