Trading
TLDR: Is trading and investing the same? My experience trading.
Traders - trade
Most of the investment advice that comes from your broker, irrespective of whether it is a person or your trading platform, is trading advice. They generally encourage you to trade, because that is where the money is for them. The more churn in the portfolio, better it is for them as their revenue comes from the transactions that you perform, pure and simple.
So is trading bad? Not necessarily. Trading is an addiction by its nature a form of gambling. Yes, I said it. You might think that you are a responsible person who studies the market signals and makes decisions.
“I am not gambling, I use technical analysis to identify market trends to enter and exit.
“I am a momentum trader, I look at broad based trends and jump in and out as i see fit”
“I am a contrarian, I get in when people get out, I look at key signals and get it and out..”
”I have made a load of money from my trading. Why are you suggesting that trading is not investing”
The broker ends up making more money from you than you. (There are a select few among you who can make a living trading, but it is a very select few, the vast majority will not)
My experience
How do I know, because I have done my fair share of trading not so much in stocks but in currencies. I was bitten by the CFD currency trading bug for a little while. Leverage trades on currency pairs - EUR USD was my favourite followed by USD JPY.
It was addictive and it was very interesting and it was devastating. The problem with currencies unlike stocks is that the trade goes on 24/5. Stock market closes at the end of the trading day in the region where the stock is listed. You have time to recover and recuperate and you are forced to take a breather and reevaluate your options before start of trade the next day. Not so in the currency market, it is all 24/5 and your only respite is during the weekends. It is brutal. I started small, made a few bets, the results panned out, made a few bigger bets and still got good results and then I was hooked.
You start off with vanilla trade, just speculating on the direction of the currency pair, before you know it you are trading binaries, straddles and strangles etc., etc. I started losing sleep, waking up at 2 in the morning to look at policy decisions, adjusting my positions, trying to write my own custom algos to open and close positions. It was crazy. I lost sleep, I would stay up at ungodly hours pecking at my phone, my tablet or my computer. I was distant from my family, I would hardly talk to them. All my walking minute outside of work revolved around currencies. My day job started to suffer, family life started to suffer and my health started to suffer.
I spent a good 14 months on this currency trading craziness, thankfully i got greedy (Yes, it was great in hindsight, not so great then) ended up taking some very big positions and ended up losing every single dollar I made and then some. I decided that it was the right time to quit and it was a great call to make at the right time.
The lesson that you can learn from my experience is this
Trading for the most part has been taken over by algorithms.
The big boys make most of the money, as they have sophisticated hardware and software that can predict these patterns much quicker than you and I ever could, sitting in front of a computer. If you are not convinced on the above point read “Flash Boys” by Michael Lewis, that was an eye opener
The broker is the one who makes money from your trades, not you
The most difficult thing to do in the market is to do nothing at all.
Learn from others mistakes and avoid making your own.
More complex your product or strategy, the worse off your return on investment tends to be
Follow the KISS principle - Keep It Simple Stupid
I would still want to create another blog post about the different types of trades that market players engage in. That is not to encourage you into any particular direction, but just so that you are aware and you keep yourself informed.
The one thing that i wish i had learned 10 years ago was to stop trading and start investing, I would have been already sitting on a beach sipping my Singapore Sling and writing this blog post enjoying the sunset. One can always dream, can’t I?