The Business of Trading - The Challenges

Trading the financial markets is a business. The business goal is to make money and the return is potentially lucrative. The business is simple. We buy and sell financial instruments. We make money when we buy lower than we sell and when we sell higher than we buy. It is simple to make money from trading but many do the opposite and lose money.

Why is that? I think 3 of the reasons are emotional:

1. Our emotion of fear and greed. We are afraid to buy when what we trade is offered at a discount and we are too greedy to sell when what we trade is bid at a premium.

2. Our herd mentality. We tend to follow the crowd, fear missing out and chase price.

3. Our strong urge to trade even there is no good reason to do so. We sometimes forget that the reason why we trade, which is to make money.

I have been guilty too and occasionally still succumb to make the same emotional mistakes.

Besides that it is the way the markets work. Even when we are rational, it is not possible to assess the market with certainty so that we know when it is cheap to buy and when it is dear to sell. We cannot tell for sure whether it is going to move up, down or sideway. The best we can do is to do the due diligence and take a calculated risk when the expected reward is higher than the risk.

Disclaimer:

Trading and investment involves risk, including possible loss of principal and other losses. I shall not be responsible for any losses or loss profit resulting from trading or investment decision based on my posting and any information presented in this blog.