It’s important for financial market players to know their identity to be successful in the world of trading. A mistaken identity is often the cause of a failure for new aspiring traders. There are at least 3 distinct categories of financial market players and some combination of them:
- Investor
- Speculator
- Gambler
1. Investor
An investor is someone who buys low and sells high. This group of people buy when the asset is undervalued and unloved by the general public. They buy with the intention of holding it for a long term. They don’t flip their position very fast. This category of people generally don’t care too much about day-to-day fluctuation. They understand they may not be able to pick the exact low thus they enter the market gradually in stages. Since they intend to buy and hold, they generally will not use any leverage as they plan to accumulate and hold it for long term. They understand patience is virtue and not in a rush to realize any profit. Usually they hold positions for a long term such as months and years.
2. Speculator / Trader
A speculator (trader) on the other hand is someone who buys / sells with the intention of flipping their position relatively fast (frequent) to make profit. Professional traders will use some leverage to magnify their gains while still limiting their losses. As they don’t intend to hold it for a long term, they often trade within a framework. This framework is what we call a trading system. There are many different trading system and these system usually have specific rules of entry, stop, and target profit.
When the framework fails, professional traders will get out of the position. A failure in the framework, such as when certain price level gets violated will trigger the stop loss. True professional traders always know how much money they bet on a single trade and they will limit their risk in a single trade to a certain percentage of their capital. A smaller percentage of speculator group does a long term trade with the intention holding positions for months / years. Majority of retail traders however are short term / medium term speculators who intend to hold position for few hours to few weeks at most.
3. Gambler
The third category is a gambler. A gambler is someone who intends to make a huge return by taking excessive amount of risk either knowingly or not. This group of people comprise the biggest percentage of the financial market players and they are generally the losers in the world of trading. One category of gambler knowingly takes excessive amount of leverage in the hope of getting excessive return. These types will make money as far as luck is on their side. When trades go wrong (which they will eventually encounter), they will have major losses / margin call. Another category of gambler is the most dangerous but yet most common and apply to many new aspiring traders. This type of gambler unknowingly takes excessive amount of risk. They may think they only use a little leverage, but they trade without any framework / system. This group usually don’t have an idea of when and where to get out of a failed trade until it’s too late. They trade without stop loss and keep holding losing position until either they couldn’t bear it anymore or get a margin call.
Correct identification for successful trading
Based on the categories above, you can now identify yourself which group you belong. Traders need to realize that every single trade can be a losing trade. Any forecast or system, whether human or machine, can not give you 100% accuracy at all times. The most dangerous category is a gambler who doesn’t realize that he / she is actually one. This type unfortunately applies to majority of new aspiring traders.
To give you an analogy, let’s suppose you bring USD $10,000 to gamble at a casino in Las Vegas. Let’s say there’s a game table in the casino which gives you a 70% chance of winning. You are very excited that you find such table. However, even in your excitement, you know you will not put all your USD $10,000 in 1 single bet. The reason is that even though you have a high chance of winning (70%), you still can lose. If you happen to be unlucky and lose, then you will no longer have any capital left to continue playing the game. Thus, even with 70% chance of winning, you still will limit your risk in 1 single bet.
The analogy of a gambler who bets all his money in 1 single bet applies to new aspiring traders. These types of traders tend to hold and nurse large losses as they have no idea when and where they should get out of a failed trade. They trade without a framework, stop loss, and risk management. They think they are traders when they are in fact gamblers. Unfortunately, gamblers always lose at the end.
It’s very important for every aspiring traders to identify themselves correctly and change their mindset if they want to have a breakthrough. Start trading with a plan. Use a system / framework, use stop loss, learn to limit the risk. Know beforehand how much money is at risk if a trade fails. We realize there’s no single forecast that can always be 100% accurate. That’s why in EWF, it’s our passion and goal to help our members understand how to trade the right way professionally. We don’t believe in just providing a forecast, that’s why we also offer educational and coaching service. Our service also includes live session, live trading, and 24 hour chat room to help members on the right side of the market. Check our forecasting service to see if we can help you in your trading career, we offer Trial without further commitment. Click here –> 14 days FREE Trial.
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