Wednesday, 9 March 2016

IMPORTANT TRADE DECISIONS

"BUY DLF 120 CALL @ 2 TGT 2.75/3.90 SL 1.20"
TRADING REQUIRES FREQUENT DECISION MAKING
The generally accepted difference between investors and traders is that investors have a much longer-term time horizon.
Traders seek stock-market profits by selling as soon as a profit target is met. They never get married to a position. Nor do they have loyalty to the company whose stock they own. They often ignore the nature of the company itself, relying on charts (technical analysis) to make buy/sell decisions. Some traders own positions for as little as a few seconds, while others may wait as long as two months for a position to work. 
Investors tend to hold positions for years, decades, or even an entire lifetime. As a consequence, they make (too) few investment decisions. Investor portfolios should be examined on a regular basis (at least yearly) with the goal of unloading stocks that no longer deserve a spot in the portfolio. Alas, that seldom happens and many buy and hold investors believe in holding forever. 
Traders make a ton of decisions.
These include more than just "when to buy" and "when to sell." Most of the time the decision is to take no action and continue to own the position. It is very important to recognize that "doing nothing" requires a real decision. ["You've got to know when to hold 'em; know when to fold 'em."] It should not represent your inability to decide whether to initiate a new trade or exit a current position. For example, when you own a stock position, intending to exit very quickly with a target profit of five-cents per share, it is essential to recognize whether the stock price is behaving as expected.
If the price does not follow the predicted trajectory, then the trader must decide whether what he/she sees is still acceptable, or whether the original premise for making the trade has been violated. That is an active decision-making process. It is a very poor practice to tell yourself that "the profit is not yet five-cents per share, so I must continue to hold." There has to be a sound reason for holding.
In other words, the "hold" decision requires as much of your attention as the "initiate trade" or "exit" decisions.
Some traders watch the charts closely, because timing the initial trade has a large effect on the profit/loss picture. When an investor pays a few cents more per share, it has little effect on the long-term results.
Traders pay close attention trade to news announcements, such as an earnings or an  FDA report. Investors should care about news and the company's progress, but they hold off on their trade decisions until after they have carefully digested the news.
Traders cannot be working full time and efficiently pay attention to their charts and news items at the same time.
When you have a full-time job it is very difficult to trade the short-term market moves. However, it is possible to adopt an option strategy with limited risk that allows you to make trade decisions when the markets are closed (and you are not at work). 
If you are someone who considers him/herself to have a trader's mindset and if you are willing to own positions for a few weeks, then you can use credit spreads to own positions which come with limited profits and a high probability of success. Best of all, this trading strategy can be adopted by people who cannot take the time to see what "the stock market is doing" during the trading day.

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