Many of you know about Norman Hallett from TheDisciplinedTrader.com, and if you don't you should! Today I've asked Norman to bring us some of his wisdom and insight when it comes to being a full time trader. Norman's been a full time trader, then managed a room of full time traders, so he knows what it takes to be one...and be a successful one! Please enjoy his article today and visit TheDisciplinedTrader.com for a special free copy of his book "Taming Risk", enjoy the article.
People fantasize about what it must be like to be a full-time trader. The picture is of a relaxed person sitting in a lounge chair on the foredeck of an expensive yacht docked in Newport Beach or somewhere in the Mediterranean. Armed with a laptop, a cell phone and a large pitcher of rum and chilled grapefruit, the trader (who looks remarkably like a buffed version of you) scans a graph that pops up on the screen. The trader then activates the cell phone and places an order. The cell phone is snapped shut followed by the laptop. The trader stands up, stretches and dives off the side of the yacht into clear warm water. Come to think of it, the yacht is in anchored in a beautiful inlet off Tortola. The water is warmer there.
The implications are clear: easy money, independence and unlimited wealth.
Of course, you are still working your way up some corporate ladder and still earning a moderate salary, just enough to keep you from looking for a new job or going into business for yourself. By way of compromise, you decide to develop another source of income. However, you don’t even have enough time for lunch so how are you going to devote time to an outside business?
You know that people of wealth have multiple sources of income, which are mostly involved with passive investing in such things as real estate, stocks, bonds, currencies or becoming silent partners in other businesses. But in your case, you only have about $10,000 to invest. By today’s standards, that’s chump change.
So, what to do?
You understand the power of compounding profits. Your dad always told you that if you start saving and investing when you’re young, you will retire with a nice nest egg. But that is such a long way off and besides who knows what the world will be like when you’re old and gray. You also have heard of some people making large amounts of money by investing actively in various markets. Indeed, small amounts of capital can be wisely invested over and over again and build in to substantial sums. Not only that, once invested, it is just a matter of cashing in at the right time and while you wait you could be doing a regular job. In fact, other than the lottery, passive investing may very well be the default alternative for working folk. If done right and with a little luck,
one’s chances are much better investing than in the lottery. Besides, what other alternatives are really out there?
OK, you decide to start investing. So what do you do? Do you start by reading books or finding somebody who actually is an investor? You may wise enough to know not to go to a stock brokerage because they will just spin you and pump you up and before you can say “snake oil”, you will be opening up an account.
You opt to start by educating yourself and you go online and quickly become overwhelmed by the depth and breadth of the information. This is a key point in your decision to become involved with investing. You see, there is a big difference between investing and trading.
Investing is taking a position for an extended period of time. Investing is based upon the fact that the general trend of most markets-over the long run- have been to increase in value. What to look for in a “good investment” is well known and there is plenty of free advice and a huge industry out there to help guide you in making good selections. This is the normal route taken by most “investors”. Buy some shares and hold them until they prove unworthy of your patience. If you are fortunate, your long term investments will perform equal to the general markets, which is around an average of 12% per year over the past sixty or so years. The key word is “average” because often an investment will under perform or over perform. The supposed attitude to be kept is that patience and a pretty much hands off approach will reward the deferred gratification and the power of compounding profits will make your retirement years affordable so you won’t have to die with your boots on. This has become such a seemingly sound proposition that government and industry have adopted the concept into a social commitment in the form of IRAs, 401Ks and other pension plans integrated into the workplace. But there are other people who take a more aggressive posture towards “investing”.
What is trading?
Trading is in reality short term investing with the potentially illusory safety net of time removed. A trader analyzes an investment in terms of the short run-anywhere between minutes to no more than several months. The concept is that even small gains can compound into eye-popping returns if produced with relative consistency. In a way, the only difference between an investor and a trader is the time frame of the investment period. With investing, the idea is that at some point in time, which is unknown, the investment will appreciate in value and it will become obvious when to sell and capture the gains. Traders don’t wait for randomness but prefer to prognosticate when to expect gains to occur, albeit only small gains.
Thanks again to Adam for having me today, I hope I was able to give some crucial insight! Any comments or questions just ask in the comments section.
P.S. For a short time, you can grab a FREE COPY of my book, "Taming Risk", which is a must-have for stock, forex, options and futures traders alike..HERE.