Characteristics of Trading

India is an emerging market for trading and is fast becoming a market for future growth. Trading everywhere has some essential characteristics, which are:–

India is an emerging market for trading and is fast becoming a market for future growth. At present, only a meagre percentage of the household savings of Indians are invested in the domestic stock market for trading. The good news is these investments may see a rise with a growing economy and a stable financial market.

Some essential characteristics of trading are as follow:

1] Frequent Trades –

Trading involves frequent buying and selling commodities, currencies, or other securities. Regular trades help take advantage of the fluctuations in the market. In general, traders buy low and sell high when the market has reached its maturity and is about to fall. Buying and selling frequently is a way to earn high profits.

Some financial advisors and trading institutions advise not to make trades frequently. By engaging in frequent trading, the trader may increase the costs of buying and selling. This, in turn, reduces the overall returns.This is one of the most important features of trade.

 “What seems too high and risky to the majority generally goes higher, and what seems low and cheap generally goes lower.”

– William O’Neil

2] Short term Gains –

Trading helps to earn short-term gains by taking advantage of volatility through buying and selling. Even most minor volatility can give high yields. These short-term gains help fulfill the short-term goals while satisfying the current need. In addition, short-term gains increase the corpus available in the more extended period.

In theory, arbitrage profits (short term gains) may seem possible, but practically they are not possible.

3] Short Term Approach –

Trading has a short-term approach. This approach can be very lucrative, but it can also be risky. The investment period can be as short as a few minutes in trading. Investing is done when the market is low and selling is done as soon as it rises even a little.

To succeed in this approach, traders must understand the risks and rewards of each trade. In addition, they must know how to spot good short-term opportunities and how to protect themselves. Some basic steps to be followed are watching the moving averages, understanding overall cycles or patterns, and getting a sense of market trends.

 “The four most dangerous words in investing are This time it’s different.”

– Sir John Templeton

(Any time you hear that things are different this time, invest as if things are the same as they always were.)

4] Focus –

In trading, complete focus is given on short-term aspects. Trading is short-term, and therefore its focus is also on short-term opportunities. Trading focuses on finding out short-term trends of underlying asset price movements. These short-term trends in price movements can be analysed and sometimes predicted. Thus, gains can be made by focusing on short-term trends in price movements.

The focus should be on the trading process and not trading results. Overall trading results are the end game, i.e., overall results should focus on trading. A trader must look at the big picture, which is a trait of a successful trader.

5] Technical Analysis –

Technical analysis is forecasting future financial price movements based on a study of past price movements. Technical analysis does not result in absolute predictions. Instead, technical analysis can help investors anticipate what is “likely” to happen to prices over time. Technical analysis uses a wide variety of charts that show prices over time. This is one of the main characteristics of the Indian market, which most traders follow.

Technical analysis is an essential part of trading. Technical analysis provides the entire base for making decisions about trading. For this, charts and graphs are used extensively. Charts and graphs help understand various patterns, trends, etc., based on which trading decisions are dependent. The technical analysis also provides information about how an investment instrument performed in the past, about how it is currently being implemented, and about its prospects for the future.

“The stock investor is neither right nor wrong because others agreed or disagreed with him; he is right because his facts and analysis are right.”

All the characteristics stated above are some qualities of a good trader.

― Benjamin Graham; The Intelligent Investor

( Stock prices ultimately go up because companies perform, and the profits go up. They do not go up sustainably because of people’s speculation. Facts and analysis ensure that an investor’s uncertainties may have been satisfied, leading to lower risk and good profit margins.)