A System to Turn an Investor into a Trader
How can a person make the transition from investor to trader? It is not difficult, but it requires an awareness of ones behavior and goals. There are seven secrets that can help an investor turn into a trader. Its time to unlearn your investing techniques.
The Seven-Step System
- Recognize that the buy and hold strategy is over.
Investors enter the market to buy and hold a stock, option, or currency. Then they intend to walk with a profit staying in a long holding pattern. This pattern could continue for years before a trader decides to sell the position he has held for five years. But traders adopt a different approach. Traders go into a trade with the intent of reaching the price target as quickly as possible. The trader would then move on to the next trade. Traders must forget about this long-term approach and shift to a short-term, quick turnaround profitable trade.
- Forget about Fundamentals
This is a tricky one. Currency traders often use fundamental analysis to predict price movements. However, most traders will not rely on fundamental analysis, but rather use technical indicators to identify entry and exit points on a trade.
But fundamental analysis is still important to currency traders. The Nonfarm Payrolls Report is one of the most important economic indicators released every month. The FOMC Minutes is another important and market-moving indicator. So, a trader simply cannot ignore fundamental analysis. Instead, a trader needs to shift to using technical indicators while relying on economic data to confirm the technical findings.
- Be prepared to short the market
Most investors will not short the market. Remember, an investor aims to buy low and sell high. Shorting the market is a bearish trade that involves buying high and selling low. Many traders strongly believe that a stock, option, or currency price falls faster than it rises. So, every trader should be prepared to take advantage of shorting the market. Investors claim that shorting the market is too risky. This can be true and shorting is not appropriate for any investor. Nor is it appropriate for every trader. A short trade could open the door to unlimited losses.
Most investors would not short the market. But a trader must be prepared to enter any type of trade: long or short. The focus shifts to making quick profits, rather than making a good long-term investment. A trader must change his or her attitude about shorting the market.