Why You Should Consider Share Trading As A Profession?

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Much like the many professions in our society, the stock trading is in itself a profession of modern civilization. Unless you are a day trader, the money you earn from trading or investing in stocks is a passive income stream. Whether you trade daily or over a time period, it can still be a profession if done in a professional manner. Many traders just don’t put the time required because they do not consider it as a profession.

Why is Stock Trading a Profession?

Stock trading involves the same kind of effort like any other activity. But why do people ignore this aspect of stock trading? This is because the potential for returns from the stock market is very high. Even by chance you may end up making great gains from stocks without spending any time for it. All you would have to do is to buy and sell the stocks.

With the potential for high return stock trading also involves high risk factor. Risk does not mean certainty of loss. It means that if ended up in loss it will be a big loss than any other loss in your life. Similarly potential for returns means not certainty of gain but big gains for less activity when things go in your favor.

When a trader spends some time to study, analyze and plan for future trades, learn from past trades, he/she can be considered a professional stock trader. The time and effort you spend may not be much depending on your strategies and trading principles. But what is important is that you give it its due consideration. Then it becomes a profession though not full time. Otherwise it will be like gambling in a casino.

Stock Trading is a Sophisticated Profession!

Unlike any other profession you must have known, the stock trading is the most sophisticated profession I have ever known. It involves the same kind of effort and analysis. It requires intelligence and alertness. But it has special characteristics that make it far better than any other profession. There are risks too for this profession.

You get to trade only on days when markets are open for trading. Your time for studying and preparing for next day will also be limited to the time market is open. The stock markets actually trade for much less time than any other office works. As I explained earlier about the time to trade in your life, it is just half the time that you get to trade stocks compared to any other job.

That gives a great deal of time for studying the markets, learning lessons, strategies, principles and also working on any other part time profession as well. Even if you do not trade stocks for full time, you may still trade stocks for a little time in your day and have a full time job. Stock trading allows that. And the returns too are not greatly different in either way. The difference comes from the trading style and strategies.

The kind of returns that stock trading can give and the time it needs from our day make it a really sophisticated profession. It is harder than any other profession. But it also entails great risk if taken full time. That is why one needs enough courage and a brave heart to make an entry into this profession.

Stock Trading can Also be a Hobby

Depending on what suits you, you can consider trading as a full time profession or only as a hobby. I too considered stock trading as a hobby much like other the hobbies. Many people have different hobbies in their life. The time spent for each of them is different. And different people spend different amounts of time for their hobbies.

Some people spend time for browsing orkut and other social networking sites. Some people spend time on browing blogs and internet. Some people spend time watching cricket and browsing internet for cricket score and other related information. Some people play computer games. And some spend time chatting in gmail or gtalk (may be all the day!). Some just spend time on research or study related to their current profession. Some people spend time for improving personal and professional life.

Similarly some people spend time studying stock markets and trading stocks. Because they spend only part of their daily life it is much like a hobby. Many traders trade stocks for the pleasure it gives and not considering it as another profession or income generator.

Why Consider Stock Trading as a Profession?

It does not matter whether stock trading is a hobby for you as long as you have a full time job. But if you want to make great strides in stock trading even by spending a little time from your day, you should certainly consider it as a profession. That is when you can commit to learn and apply powerful trading principles consistently. It is only consistent trading that gives a long term success in stock trading. Otherwise you will also join the group of losers who quit after three consecutive losses!

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What is Your Stock - A Laggard, a Leader or a Mover?

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Do you trade stocks just without knowing what type it its? Are they moving along with the market, ahead of the market or behind the market? There is a simple categorization of stocks into laggards, leaders and movers. Knowing this can make a big difference in your trading success in the long run.

Classification of Traded Stocks

There are actually only two categories – laggards or leaders. But the stocks can be categorized into three in reality. But the third term is not right though I used it for the sake of understanding. Mover actually, in popular sense, means that the stock that is heavily traded on a given day. Even this classification can help make better bets in the next trades.

The stocks in a market can move independently on their own or get influenced by the movement of other stocks. The reasons can be different but apparently we can see that some stocks are getting influenced by other stocks movement. This apparent distinction in time between different stocks results in a whole new opportunity to trade well.

Who are Leaders?

Some stocks tend to move ahead of the market. These are called as leaders. These are the stocks that make their name in the top section of the list of gainers and losers for a given day or time period. They are moving ahead of the market not just in terms of gains but there are also cases, where certain stocks make their moves before other stocks can make their own.

Who are Laggards?

Some stocks tend to move behind the market. Generally these are thought to be as the stocks that do not make as much gains as top gainers and as much losses as top losers. But my classification here is not about that. It is about the time when they make their move. Whether it be small or big compared to the leaders but they move only after leaders made their move. These stocks are called laggards.

It is All in the Time Difference of Movements

Even though the term leader is referred to in the right sense, the difference I am going to bring up here is about the time difference between laggards and leaders when they make their best moves in price. I found that these terms are also used to refer to exactly this difference by some traders.

In between these two types of stocks there are other stocks generally which form the rest of the market that move just along with the market in synchronization in time with the indices. As these are more in number they make the part of portfolio of almost every trader. Only those traders, who stick to a particular strategy, do consider different stocks and get some flexibility in their trading.

Making a Trading Strategy Out of Leaders and Laggards

Knowing this classification of stocks, we can make some interesting conclusions. I observed that stocks that become leaders continue to be so in their next moves as well. You will get to know this as you track market statistics on a regular basis. Similarly stocks that become laggards, tend to continue like that for some more moves. It is this behavior of stocks that results in a whole new opportunity to trade. We can make a simple trading strategy out of this.

The strategy is to trade the stocks that move as laggards once you notice that leaders have just made a move. Before you can apply this, you should have already built a list of stocks that fit into these two categories. You can apply this strategy for both short term trading and long term trading as well. You can also do this for long buying and short selling as well.

So It is Fortunately a Consistent Strategy

I am amazed at how consistent this pattern of behavior is found in stocks from time to time. And in fact I don’t know when it was different. Some stocks that I found as leaders continued like that in the last bull market into the trend reversal and later bear market as well. The trick would be to take advantage of the stocks that have not yet made their move when leaders have made it.

It is not hard thing to understand or to execute this strategy. It is pretty simple. There is also no uncertainty in this as to when to exit or when to enter or which stock to choose. Just keep one thing in mind. As you are able to find stocks with certainty of move, go for any stock that satisfies these criteria and hasn’t moved yet. Don’t worry about which stock might give bigger return. After all you have removed so much of uncertainty in your trading. Can’t you cope with this one uncertainty about the amount of return of the trade?

There is also another way to benefit from this classification of stocks. It is when sitting tight as I explained earlier. When sitting tight, it will become easier to anticipate when the stock may move and you may plan exit, after determining what type of stock you are holding. If it was leader, you may consider exiting and jumping immediately into a laggard. If it was a laggard, then you know that the expected move is just about to begin. That can help you hold your patience with the stock. This is important in the long run.

First Build the List and Then Trade

If you haven’t yet done something like this, then you should start building the list of stocks. Track them regularly before classifying into appropriate categories Also note that there can be certain stocks that change their behavior from one move to next. But there are also consistent stocks. You need to pick only such stocks. To make it better apply diversification strategy here.

You too can add it into your strategy of trading and enjoy the simplicity it gives!

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Why You Should Sit Tight to Make Big Money from Your Bets?

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Many successful traders or investors in history have done this. Many traders still continue to sit tight and make big money from their bets. Sitting tight is the single most important thing that can make or break a stock trader’s portfolio in the long run. But it is more dependent on the type of strategies a trader uses than on any trader in general.

What Does Sitting Tight Mean?

Sitting tight is a term most popularly used in stock trading by successful traders. Because you can be certain to become successful if you employ sitting tight principle in your own trading! It refers to holding the stock patiently no matter how violent the stock may be moving till it makes the anticipated move in the desired direction.

It is much like its literal meaning. Let us say you are sitting in a vehicle and the vehicle is moving on a rough terrain. Then whether you sit tight or not determines how your experience of the journey will be. Those who sit tight will stay there till they reach their destination without leaving the vehicle or getting hurt. Same is true in stock trading. Just sit tight when your stocks are making you feel uncomfortable.

Any Trader can Sit Tight

Sitting tight can be applied for any time frame. It applies to short term traders, intra day traders and long term traders as well. It does not matter what amount of time you should sit tight, there is always a situation when the stock behaves unexpectedly but you are expected to sit tight.

Importance of Sitting Tight on Your Trades

Sitting tight can make a big difference on the long run. This is because often the biggest gains in stocks can be made by sitting tight on your bets. Immediately after you buy a stock it may either, just fall below your buy price prompting you to sell with stop loss or sell because it is just waiting above the stop loss and wasting time, or it might have moved up sharply and down violently though it shows good profit from buy price. In all these situations, there is an opportunity in sitting tight.

It may not necessarily be true all of the time. But often the stocks tend to move in trends, that is, they continue with the same trend and repeat the moves that they did earlier. For this reason sitting tight makes the big difference between a successful trader and a trader who just makes it above the break-even barrier.

Sometimes institutional investors or some smart high networth investors try to play games with the retail investors. It is easy to for them to play for a while because they have huge money to play with. They can risk a little for game play while testing your trading attitude. Recently Sebi announced plans to allow Indian Brokerage firms to use their software based trading. This was despised by these institutional investors as they can't know now whether it is a retail trader or a software that they are competing with on the other side.

Successful stock traders like Jesse Livermore have explained the importance of sitting tight in trading stocks. Even after knowing its importance we tend to forget it or violate it for some reason. But focusing on its long term importance one can make a habit of sitting tight on the right bets and make the best out of a trade.

Don’t Be Mislead into Holding Stock as Sitting Tight!

There is a difference between sitting tight and holding the stock. Sitting tight does not just refer to the act of holding a stock without selling it. Sitting applies to only situations where you should hold your breath and do not sell immediately till the stock makes anticipated move. So there is a plan in your trade and an expected result when sitting tight. You will hold the stock till it does what you expect it to do.

In holding a stock there may not be a plan. You may be just holding it for no reason other than hope. Most of the times the average stock trader decides to hold a stock only when it falls below their buy price. He/she does not get the courage to book the loss, when it is small, and expects it to turn around and close it without loss. It may or may not happen. Most of the times the stocks move in the same trend. Hence as the stock falls further and further, these traders hold it for eternity making the loss bigger and bigger!

But sitting tight in no way comes close to this act of drowning in a falling stock. In fact holding the stock in a falling market is opposite of sitting tight. Relatively we can view it like this: not waiting till the stock makes its bottom is sitting tight on you cash in a bear market trend. We should clearly distinguish before trading stocks as well as even while trading stocks. Most importantly you should be able to clearly assess the type of situation you are in and if you are already in loss cut short with stop loss, close the trade, or plan for second stop loss there is still an opportunity for the stock to make a move. Never take a third chance.

As the stocks continue in a trend, you will also need to sit tight for long term trading beyond one cycle. Long term stocks move ahead in jumps. It gives a big return if more than one jump is captured in a single trade. This is where you need to sit tight. It enables you to get an extra margin over trading expenses and also increases the profitability per trade. This ensures long term success of stock trader as only few such trades are needed which compound that return into massive gains over a period of time.

Depends on Your Trading Strategy

Sitting tight is not just for any stock trader. It has to be applied to certain types of strategies. Knowing them well makes a big difference too. For certain types of strategies there may not be a need to sit tight.

Some traders’ strategy is to trade that part of the stocks’ movement that is certain when applied a particular rule of entry or exit. This can be for short selling or buying stocks. They exit quickly after the stock makes that certain move upon entering. In fact here if you keep watching the stock, the stock will hit the high and wipe out the gains quickly. There the stock will sit tight before making another move up or down. As the margins of profit per trade are low for these traders, they do not waste time sitting tight.

Hence the profit potential per trade must be considered strictly when deciding to sit tight on a bet. The trade should generally be of a long swing type be it short term or long term. The expected price range potential should be very high. Even in day trading, stocks can make moves successively again and again on certain days. These days are not very rare for particular stocks. But on average they are rare. Hence a stock, that makes such moves on some day, may make only part of such move on normal days. Here it becomes difficult to separate it. So you will have to check the pattern, assess it and decide to sit tight within the day or over a few days.

Generally Good on Long Term Trades

Sometimes in day trading, immediately after you make an entry the stock might just become range bound into a tiny range. The volume may dry down. But you should weigh the trade-off between the value of your trading time and the odds of the stock moving right. Then only sitting tight here can make a difference. Of course profit potential over expenses must make it worth sitting tight. Unless otherwise you should restrict this habit to the long term trading only.

Sitting Tight can Change Your Portfolio Forever

Note the strategy you are trading with, the situation at hand when you are in a stock, and decide whether it is right to sit tight. When done properly sitting tight can grab all the opportunity that you have ever wanted to capture in a stock. It results in a long lasting satisfaction and experiences to share as you sat tight when the stock moved violently!

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