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What Can Investors Learn from Financial Traders?

October 16, 2017 07:30

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Dear traders,

Are you so busy working and running errands that making decisions about your finances and investments seems like a burden to you?

This article explains that trading is not as intensive and time-consuming as it might seem, once you have a proper structure in place with the right knowledge in mind. In fact, we will explain how and why trading offers just several key advantages as compared to investing or "buying and holding".

If you are an investor, but unsure about active trading, this article will help explain how knowledge of technical analysis can even offer help with time-efficient trading and even (the timing of) your investments. Check out our daily webinars for more education on trading.

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Disadvantages of Investing

Investing is not as easy as it may sound. Here are just a few cons that spring to mind, but feel free to add to the debate in the comments section below:

  • Taking a passive attitude could be difficult to change, even if the situation and your financial portfolio deserves a more active approach.
  • Also, passive investments make it appealing to (largely) outsource the decision-making process or just buy and hold without any particular goal or strategy in mind.
  • Less involvement often means distance or even indifference to the decision-making process.
  • Although trading is considered to be riskier, it also offers more potential reward and opportunities.
  • Trading and technical analysis offer advantages with regard to timing techniques and finding better entry and exit moments.

Outsourcing these decisions or making very long-term investments might work well, but there are also major advantages by taking (at least some of) your financial future in your own hands – as mentioned above.

Simply put, financial decisions are an important part of everyone's life, whether we like it or not. Unfortunately, making smart and informed choices does require some practice and time, but luckily, it is not as demanding you might think.

Let's review some tactics and ideas that could reduce the effort and time intensity of trading while still offering many of its benefits.

Simple Trading and Analysis Techniques

Many people think that the news is able to explain most or all of the price movements in the financial markets. The problem is that there is plenty of data being released on an hourly basis and reviewing all the information is impossible, even for full-time traders.

Also, in my view, using this data would not only be very time-consuming, but also very difficult to interpret. There are hundreds of opinions available, and I'm sure that many conflict each other. Even if you were able to interpret and read all of the data, how do you know which data point will have the most impact? In my view, this is extremely difficult, but a much simpler method called technical analysis is there to help us out.

First of all, let me explain what technical analysis (TA) is for those who are new to the terminology. Technical analysis is the analysis of price charts in the financial markets. Just as weather (wo)men read weather charts, financial traders and analysts read price charts.

The biggest benefit of price charts is their simplicity when compared to the wide range of fundamental data, news events, and statistics that are being released each day. The price charts are simpler allowing traders to focus on only one data point rather than hundreds of data inputs.

Ultimately, it it true that all of these data points influence the price in some way, but it is very difficult to understand what factors really push the price up or down.

In my opinion, it is more efficient to analyse the outcome (price) rather than the factors themselves. Analysing the charts, we can focus on one simple metric, the price itself.

As mentioned in my trader's blog last week – Is It Possible to Trade and Have a Full-Time Job? – applying technical analysis and long-term trading is not as difficult and intensive as you might think it is.

How to Approach Technical Analysis

By analysing daily charts once a day or weekly charts once a week, you can manage to:

  • Keep a close eye on currently open trades or investments;
  • See whether new trading opportunities have emerged;
  • Understand whether and when the market sentiment (bullish/bearish/neutral) has shifted or changed.

All of this just by analysing the price. Of course, learning to apply technical analysis also requires a learning curve. But here are some steps that could shorten the process:

  1. Start with a demo account to practise technical analysis.
  2. Learn more about technical analysis participating in live trading webinars by Nenad and myself courtesy of Admiral Markets.
  3. Check out our educational articles and blog articles to keep learning.
  4. Check out the beginner's trading course and intermediate trading course by Admiral Markets.

Ultimately, when you invest a bit of your time into learning technical analysis, trading will no longer appear intensive and time-consuming. In fact, there is a big chance that you will grow to like it.

Once you have a proper structure in place with the right knowledge in mind, you are not only better prepared for your financial decisions, but also have gained a valuable new skill.

Cheers and safe trading,

Chris Svorcik

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