If you’re a small trader, you need to think long-term for your success. You may be better off as an investor than a market trader right now.
Small traders typically have less access to high-frequency traders and large market makers who can trade at microsecond speeds. This limits your ability to take advantage of the highest frequency and liquidity, commonly referred to as “The Big Picture” in the market.
Who is a small Trader?
Just about anyone can be a trader. Traders are found at the little retail shops and the huge investment banks; they’re on trading floors and online; they include stockbrokers and fund managers.
But there’s a catch – if you’re a trader, you’re not making investments. You’re making trades intended to be closed out at a profit or a loss within minutes to hours rather than being held to maturity over weeks, months, or years.
In addition, small traders have less leverage available through their trading accounts than larger traders. Larger traders generally have more capital to work with and can afford to place larger trades. They often utilize advanced tools such as limit orders and stop losses, allowing them to take bigger risks without carrying more risk for bigger profits.
Investing Vs Trading
Investing and trading are two different things. A trader can be a good investor, but there is only one limit on the number of profits you want for all your trading and investment decisions. But in investing, it’s up to you to decide how much risk you’re willing to take because, with investing, you’re not taking a massive loss. You’re in it for the long term, and you’ll be making profits on all your trades.
The difference between trading and investing is that with trading, you’re often speculating on whether a stock will go up or down. You have no idea about the value of the underlying company that’s being traded. With investing, their outlook is different; you can know everything about a company and make an educated decision based on its potential growth or decline.
In Europe, many dealers and bank traders are paid not in bonuses but shares. But the UK forex brokers still pay traders bonuses in cash. This is the difference between trading and investing. In Germany and Switzerland, you are more likely to find investors, who are the ones who made it wealthy.
The difference between a trader and an investor is the timeline of how long they hold and what they do with their position. Investors will hold their positions for an infinite amount of time, and traders will try their hardest to get out of a business as efficiently as possible.
The 10 rules to become a Winning Investor:
Protect your capital at all times:
If you are investing in forex, you can’t make a 100% profit unless you have the amount of money you invest in USD. It would help if you always kept your capital safe. If you are using leverage, be sure to use money that you can afford to lose.
Losses are inevitable if not controlled, so ensure that your position sizes aren’t too big or high-risk. Always check with a Financial Adviser before doing any of these things and or when putting together your trading plan.
Mind your trades:
Every position you have is based on the analysis you made. Before putting in a trade, ensure a stop loss and target set for yourself. When the market breaks a trend line or goes through your target, get out of that position immediately! Don’t wait for the worst, or you will lose more money than you have to.
Do the Research:
Research is the most crucial step when you are about to invest. It would help if you were 100% sure that the company is good and that its target price is achievable by seeing what other companies in the same industry are doing, their market cap and everything before you put your money in.
Set your goal:
Whether it’s short-term or long-term, set a goal for yourself that is realistic. If you are a swing or day trader, you will see many fluctuations in the market. Set your monthly goals; if a stock is not performing as expected, take it out and move to the next one.
Understand your trading plan:
Prepare all your trading strategies before doing anything else! Make sure they all are working together and making profits before putting them in place. Once all profits start drying up, rethink what you are doing wrong and try again.
Know the market:
The market is always one step ahead; you must always understand it. If a strategy is working, you should be following it, and if a new pattern appears, know how to spot it and react to it with your other strategies.
Have a position size:
You need to set your trade sizes based on what fits your account/your lifestyle. You must know that the larger your position size, the bigger your risk is. But with a large position, you can make more money. Keep in mind that you are risking your capital here, so don’t put all of it in; keep a large portion at a minimum and always stay safe.
Set your stop loss and target:
Decide on what price you want to get in on before making a trade, and decide on how much profit you want from the trade. To calculate your stop loss, look at the chart and see where you are trading. If a candlestick of a certain color shows on the chart, it means a certain price has been reached.
The target price is usually decided by seeing the previous pattern and gauging how high the trend can go before reaching that point again. The most recent trend on the chart must be considered for your stop loss and its direction.
Develop a Methodology Based on Facts:
When looking at the charts, a key point to consider is whether they are trending up or down. If the trend is aligned with a certain bearish candle or a bullish candle, then it’s all right to go long on that stock. If the trend is against you, and you’re trading against it, and it’s going against you, that’s not good for your portfolio.
As always, being patient is key when investing in forex. Set your goals and check on your trades daily, as it is part of your trading plan. If a trade is not performing well anymore and you are losing money, don’t wait for the stock to recover to put it back in a buy order.
You will only cut your losses short, and getting back in will only mean more losses. The stock needs more time to recover before you make a move, so take it with a grain of salt if you aren’t seeing any improvement after weeks of underperforming.
Interesting Related Article: “Common Mistakes of Beginner Traders“