Here’s a note I received from an investor looking to maybe dabble in the trading world.
Hi John, Actually there r no puzzles. I have been investor all these years. Have researched many companies. Have set up my own investments co. But i have always been more fascinated by trading. I have been reading Market Wizards books since last few days. I have found them very interesting.
In past due to loan defaults, i lost big money which i had loaned to my relatives and friends. It took me ten years to make back which i lost due to no fault of mine. I was just patsy and did not have any guidance.
However, if you recommend anything, i m all ears. I am serious about learning how to trade profitably. Have met Jim Rogers in past when he visited Mumbai.
In my book I made the observation that functionally (if not philosophically) trading and investing are essentially the same thing. By that I mean when investing you have a process and a methodology for identifying pospective investments and making investment decisions and in trading you have a process (often called a system) for identifying trade opportunities and making trading decisions. Those processes often have numerous similarities, though the timeframes involved are generally not one of them.
I think the major issue for someone trying to get into trading after having been an investor is deciding which market to do that in. The obvious choice would be to stay in the stock market, since the investor is already knowledgeable there (presumably). I’d suggest that maybe a different market might be the better idea, though.
Why?
Because one of the risks of having a split trading/investing focus is that trades become investments and investments become trades. By that I mean a position that was intended as a trade turns into an investment when the trader starts altering the way he/she looks at the position, and vice versa. Invariably, this becomes a disaster waiting to happen because risk management rules get tossed aside – usually at the worst possible time.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
** See John’s full bio.
