Your Trading Objective: Why is that so Important?

 

You've decided to try your luck at trading stocks or commodities, but so called experts tell you that you need to determine your trading objective. What exactly does that mean and why is it so important? Well, it's really a question of your trading philosophy. A trading objective basically identifies the horizon on which you've chosen to trade. For instance, a day trader will have totally different set of objectives and goals than will a long term investor. They look at the market through different sets of glasses and it can be very dangerous to your trading account to try to mix and match trading styles.

Let's first look at the most common trading objective - long term investing. Long term traders are usually more concerned with company fundamentals such as earnings, annual growth, and sales to name a few. They may use some technical indicators such as price charts and graphs to help time their entry points, but fundamentals are generally more important to them. Long term traders are looking for that home run trade that will pay very large profits. Therefore, they can be right as little as 20-25% of the time and stay earn a nice profit. They have been known to hold a given stock for several years.

The other end of the trading objective is the day trader. Day traders go into the market each day looking for quick small moves of less than a point - known as "scalps". They use technical charts exclusively and typically buy large positions which they often sell within minutes. Their profits on a given trade is much smaller than those a long term investor would generally make, so therefore day traders must have a very high winning percentage of trades - usually 60% or more to be successful.

 



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