The time it takes to learn swing trading starts from how long it has taken you to learn the basics of investing. This article is about the basics of trading. You get the most out of it when you are trading using simple, easy to understand, simple steps.
How you choose the appropriate strategy
The general concept is based on the principles of psychology. Each asset class has a distinctive risk vs reward profile.
The best strategy for each of these investments is therefore very different. It depends on different factors such as the risk of portfolio risk; the ability of traders to make sense of signals and noise; the efficiency of systems and algorithms; the level of risk tolerance by the system; etc.
Investments do not have to be risky – for example, the U.S. Government can go in the wrong direction and not crash and burn.
When the decision to buy or sell is made, there are a number of factors a trader must consider.
The first is the time it will take to perform the trades: do you need to wait as long as possible for prices to rise, or can you wait for a particular type of stock to rise sooner? The second is the size of your positions: if you buy the low priced and low returns stock, you are going to get short-term gains but if you buy the higher priced and higher returns stock you are going to lose money in the long run.
The third factor is the risk of being wrong, or missing, in your decision which direction the stock should move.
You might consider a risk that is very low – for example if you buy in a stock at $5 on a Friday and the price goes down to $4 on a Monday, you would be short the stock – you would actually lose money. If you did not buy it from a price below $5 but rather bought from one above $5 then you would be correct even though you would lose money over the long-term.
A much better strategy to use is to take profits when prices fall and to sell when they rise; you would profit on the basis of the price of a stock falling down, but you would lose on the basis of a stock falling up. This is called a high-cost strategy and has proved to often work out for you.
The fourth factor is the level of risk tolerance, that is the ability of the system to get a fair return over time and not get too heavily beaten by a bad market.
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