ON TRADING !!

Investing and trading are two very different methods of attempting to profit in the financial markets.

Both investors and traders seek profits through market participation. In general, investors seek larger returns over an extended period through buying and holding. Traders, by contrast, take advantage of both rising and falling markets to enter and exit positions over a shorter time frame, taking smaller, more frequent profits.

Before I come to the main subject and my mission instrument of equity investments, it is essential to discuss briefly what is being eliminated and for what reasons and then focus on the chosen method and learn it and master it well. So like mutual funds we discussed in the last blog I will discuss trading and then eliminate it from our focus.

Investment strategy and process has to eliminate this clutter and hype created by marketing and vested interests which may distract many investors from their goals as well as their focus on working for their livelihood. Livelihood of brokers, financial markets, mutual funds and their promoters depends on their continued ability to attract new traders to the market to replace those who burn their fingers in trading leave the market.  

What is Trading ??

Trading, involves more frequent buying and selling of stock, with the goal of generating returns that outperform buy-and-hold investing. Trading profits are generated through buying at a lower price and selling at a higher price within a relatively short period of time. The reverse is also true: trading profits are made by selling at a higher price and buying to cover at a lower price (known as selling short) to profit in falling markets. Where buy-and-hold investors wait out less profitable positions, traders must make profits (or take losses) within a specified period of time, and often use a protective stop loss order to automatically close out losing positions at a predetermined price level. Traders often employ technical analysis tools, such as moving averages and stochastic oscillators, to find high-probability trading setups.Thus making the practice very complex,time consuming and difficult for commoners.

While investors may be content with an annual return,which beats inflation, traders tend to be greedy and seek higher return in short term and very few are successful by trading in the long run. While most traders only hope for this short term profit, reality is different and more people suffer in some form or other besides financial than benefit from it. Very little of empirical evidence is available but it is generally observed as such.

My reasons for eliminating trading as an option for achieving your goals of financial freedom and happiness are:

1. Its speculative as market direction in short term is difficult to predict both for the market as a whole and even for particular stocks.

2. Its much more risky than investing

3. It causes more stress and thus adversely affects happiness.

4. Traders reflect an attitude which is opportunistic, short sighted,greedy and speculative.This is not the right attitude required for generating , retaining and growing wealth along with sustainable happiness in life.

5. Being short term process, traders have to focus on trading and spend a lot more time from normal income generating activity and suffer frequently fluctuating emotions of sadness( more likely?) or happiness (less likely!!). Human behavior and average discipline does not lend itself to this method over a long period in most cases.

6. With the rapid developments in technology like Artificial intelligence, Robotic automatic high speed trading and block chain , traditional traders face a challenging task ahead.

Trading unlike investing does not provide capital for industries and services to generate employment and contribute to the overall economy.