Investor Lessons to Learn from Short Term Traders

Friday, May 8, 2009

Investor Lessons to Learn from Short-Term Traders

Short-term trading and investing is considered almost opposite trading strategies suiting different types of peoples with different portfolio requirements and money managements. Although one is not considered superior to other, short-term trading has some advantages as it demands quick learning and active trading, better touch with market and economy, better money management and quick decision making. Majority of investors we see around us are poor with their money management, less skilled and are less aware of market movements. There are many things which investors should learn from short-term traders.

Trade Planning – Although at first glance we may feel that most short-term traders trade without a plan, there is definitely a trading plan for every successful trader. There are stock, market, brokerage and software preferences, market timings, diversification, etc. with most short-term traders.
Technical Analysis – Most investors try to forget it willingly, even the basics like support and resistance levels. Most short-term traders try to test and verify their plans and decisions (and others advices) with charts, indices and formations. In fact, for them doing the right thing and right time is vital for their survival.
Risk management – Right position sizing, right stop-losses and right profit-targets according to personal account size. Most investors are poor with their position sizing causing over or under exposure to market risk.
Trade Reviews – Short-term traders should review their portfolio on a constant basis to make timely adjustments. For every investor it is a good practice to review their portfolio size, open positions, risk levels, trailing stop losses, etc on a monthly or bimonthly basis.