Here's a simple
question-what is trading? To answer, perhaps not so simply, we first
need to understand what trading is NOT. Trading isn't about buying the
fanciest chart, hanging on to something because it is a good buy, or
feeling good about yourself because you can go to a cocktail party and
relate to what everyone else is saying. Trading is about making money,
period.
There are software systems that create
pretty colors and tell you which stocks are safe to buy because they
have moved a certain way in the past. If one particular stock has been
going up and up and up, a trend follower concludes that the stock
should continue moving UP! However, in order to follow a stock's true
potential progress, would you rather wait for a computer program, or be
actively and directly involved in its ascent?
Picture an apple in the center of a
room, surrounded by 10 traders. Consider for a moment, each trader
buying the apple until everyone has owned it. What is that apple worth?
It is worth ONLY what someone will pay for it. Person #1 buys the apple
for $1 and takes a bite. Person #2 then pays $2 for the same apple and
takes another bite. Person #3 pays $3, and so on until finally, the
last person takes that final bite. Yes, the apple is STILL worth only
what the next person will pay for it-no more, and certainly no less.
The only person left to sell it to is the one who walked into the room
an hour late, looks at the apple's past price history, consults his
software that says the smelly apple has had a great price performance,
and determines that it's a worthwhile buy. That is precisely the
definition of trend trading.
Make no mistake, successful trading is
about you versus the guy sitting next to you with the pretty software.
Don't waist your time trading with charts, spend your time leaning how
the futures market really work.
