The Investor Vs Trader Misconception
The following few lines are dedicated to whom have made the transition from being investors to becoming day traders. I am one of them and I had to learn this lesson the hard way. So, if you’re quite new to trading and you have spent a sizable amount of your free time as a do-it-yourself investor what you’re about to read is even more important.
Through the use of the financial markets, both investors and traders adopt strategies with the only objective of making a profit. But, believe it or not, that’s essentially the only thing they have in common. So, if you’ve thought that you can make a living with day trading because you know a lot about investing, I strongly encourage you to think twice. The consequences of this misconception can cost you a fortune. If you are unsure, take a look below here.
Here is a list of notions that are relevant for investors when looking to put money in a company:
- Fundamentals: to determine how solid it is in regard to its primary business;
- Dividends: to measure how much it is paying back its investors;
- Long term outlook: to forecast its ability to grow over the years.
Guess what, none of these have any impact for day traders whatsoever.
Now, take a look of what matters the most for them:
- High relative volume: to ascertain the high level of interest among traders and the necessary level of liquidity for executing orders quickly;
- Breaking news: to make sure there is a reason for that stock to move considerably;
- Strong setups: to be able to apply a proven strategy at the right time for the highest probability of success intraday.
Of course, there is no influence by these notions above into the decision-making process for an investor. That’s why we can reaffirm that, once and for all, investor and trader are two different jobs that have almost nothing to do with each other.
Always Trade What You See
Day trading is a highly technical job that requires education and discipline. I believe this is the place where you can learn about both (the WarriorPro program has been the best starting point to me). Once you’ve these two skills well established, experience will do the rest. That’s why I can’t make this statement clear enough: always trade what you see!
Time is the most precious resource we possess. In fact, there is a limited amount of operations we can do before making a conscious decision about the next trade and no setups will wait for you to get ready. So, don’t waste your time looking at what an investor would pay attention to if you are serious about being consistently successful as a day trader.
For the same reason, I personally don’t like to read too much further into the meaning of a headline that just hit the press. All I need to know is that there is a breaking news that is eventually having an impact to a specific stock price. In other words, I don’t expect a stock price to fall because of a bad news. Instead, it’s the other way around. I observe the effect of that news in terms of price/action and wait for the most promising setup to form in order to anticipate the direction and the entry point and of a trade.
Releasing yourself from old beliefs will make enough space for you to focus on what really counts.
See you in chat-room!