What is trading?
Essentially trading is a way to use the financial markets as a method to grow your money. It is a financial skill that you need to develop in order to be able to grow your money.
Trading, in itself, is very simple: buy low and sell high (the reverse is also true: sell low and buy high). As simple as this sound, it does not tell the whole story. It does not tell you, for instance, two of the most important things about trading, which are: how do you know WHAT to buy or sell and WHEN to buy or sell.
Successful traders know what and when and quite a few things in between. They do it with confidence and serenity while following a precise trading plan. They know what and when because they’ve taken the time to learn to trade. They’ve taken the time to develop their technical and mental trading skills.
Trading has nothing to do with gambling. It requires technical skills, knowledge and mental strength including patience, discipline, self-confidence and a good dose of self-knowledge.
Trading is a business that requires that you treat it as a business. Actually, trading is the best business in the world. Trading is the only business that allow you to adequately prepare yourself to be a successful trader without putting any money at risk. No other business allows you to become a master of your trade without any financial risk.
This is an invaluable quality of the business of trading that you need to grasp if you don’t want to join the 75% to 90% of the traders that are losing money trading. And, the only reason why they lose money is because they did not take the time to prepare themselves adequately. They were anxious to start trading. They got blinded by the simplicity of trading and confuse simplicity with easiness.
I am not telling you this to scare you away from trading. I am telling this so that you know and understand that trading is not a get rich quick scheme and it is not easy money.
Although trading is simple, trading successfully is not easy. Trading successfully is not easy. Trading successfully is not easy.
Knowing how to trade demands that you learn the mechanic of trading including how the markets works, how to place an order, the difference between a buy order and a sell order, etc. These are all technical information that once you know them you can say that you are a technically competent trader.
Theoretically, you know how to trade. You can call your broker and tell him that you want to buy/sell a number of shares, a commodity contract, or an option in a specific market and you’re in business.
However, your technical skills will not make you a successful trader. It will only make you an easy prey to the trading master that will have a feast of you and your money, so quickly that you won’t even know what and why it happens to you. Trading is a technical and, most importantly, a mental business for which you cannot improvise yourself.
It is the development of the mental skills needed in the trading process that will make you a successful trader. Trading is an emotional activity. It involves our relation to money and the feeling we have in front of the possibility to make or lose money.
It is your ability to control your emotion – greed or fear – when it is time to take a trading decision that will define your degree of success in trading. No matter how good you are technically, if you don’t control your emotion, you are bond to hit a wall sooner or later but probably sooner than later.
That’s what trading is all about and that’s what defines a successful trader. Not its technical trading skills but its mental strength. As the master says: Trading is 10% technical and 90% mental.
So to get back to our question, what is trading? Trading is a financial business that has for unique goal to grow your money through trading decisions. A business that demands that you acquire some technical skills while developing a strong mental control over your emotions when time comes to take your trading decisions.
That is why being a successful trader is not easy, However, as I was saying, trading gives you the unique opportunity to practice and develop as a trader with real data and a real situation context without putting any money at risk and as long as you want and need. No other business in the world can offer you such opportunity.
Trading is not a sprint, trading is a marathon. Take the time to adequately prepare yourself technically and mentally and you will be a winner in this race.
See you in my next blog where we will start to look into the detail of preparing to become a successful trader.
Take care of yourself and have a very pleasant day.