Long Term Growth With Trading
Long Term Growth With Trading
Benefits Of Long Term Trading
This forex blog outline about long term growth with trading, When people think of benefits of long term trading, they think of investing. Buying shares of companies that will one day be huge. They rarely ever think about trading. Even though trading can offer a better long term solution then investing in many cases.
Let me clarify what trading is. Unlike investing trading is attempting to time the market. Enter, make a profit or loss, and exit. It is really that simple. The idea is that with the right system you can still make a profit on average, month after month.
Many traders will only be in a trade to a few days, maybe a month. So, how can trading help you make long term profit? You have to reinvest your profits. Instead of spending the money you make if you reinvest your profits back into market you can let your money grow at an exponential rate.
This method can be many times over greater than investing. That is because it deals with compound interest over short periods, not years. Let us compare the two.
For examples: You have $10,000 and want to let it grow for 10 years. You have two options. You can invest it or trade it.
If you invest it and pull out 20% a year, after 10 years you would have $61,917. You have made a good sum of money. Not enough to live off of, but a decent amount.
If you chose to trade it however and pulled out just 5% a month, after 10 years you would have $3,489,119. That could make you a millionaire many times over. This is all due to compound interest which is what trading is built off of.
Trading Tips For Successful Long Term Growth With Trading
In the trading market some principles are indisputable. Let’s review general principles to help traders best approach the market from a long-term view. Every point is a fundamental concept every investor should know.
1. Sell The Losers, Let The Winners Ride
Time and time again, investors take profits by selling into their appreciated, but they hold onto market that have declined in the hope of a rebound. If an investor doesn’t know when it’s time to let go of hopeless market, he or she can, in the worst-case scenario, see the market sink to the point where it is essentially worthless. Of course, the idea of holding onto high-quality investments while selling the poor ones is great in theory, but hard to put into practice. The following information might help:
- Riding a Winner
- Selling a Loser
2. Don’t Chase A Hot Tip
Whether the tip comes from your brother, your neighbor or even your broker, you shouldn’t accept it true. When you make trading, it’s important you know the reasons for doing so. Do your own research and analysis of any market before you even consider investing your hard-earned money.
3. Don’t Sweat The Small Stuff
Don’t panic when your trading experience short-term movements. When tracking the activities of your trading, you should look at the big picture. Remember to be confident in the quality of your investments rather than nervous about the inevitable volatility of the short term. Also, don’t overemphasize the few cents difference you might save from using a limit versus market order.
Granted, active traders will use these day-to-day and even minute-to-minute fluctuations as a way to make gains. But the gains of a long-term investor come from a completely different market movement – the one that occurs over many years. So keep your focus on developing your overall trading philosophy by educating yourself.
4. Don’t Overemphasize The Risk / Reward (R/R) Ratio
Traders often place too much importance on the risk, reward ratio (R/R ratio). Because it is one key tool among many, using only this ratio to make buy or sell decisions is dangerous and ill-advised. The R/R ratio must be interpreted within a context, and it should be used in conjunction with other analytical processes.
5. Pick A Strategy And Stick With It
Different traders use different methods to pick trading and fulfill investing goals. There are many ways to be successful and no one strategy is inherently better than any other. However, once you find your style, stick with it. An trader who flounders between different trading strategies will probably experience the worst rather than the best of each. Constantly switching strategies effectively makes you a market timer, and this is definitely territory most traders should avoid.
6. Focus On The Future
The tough part about trading is that we are trying to make informed decisions based on things that have yet to happen. It’s important to keep in mind that even though we use past data as an indication of things to come, it’s what happens in the future that matters most.
7. Adopt A Long-Term Perspective
Large short-term profits can often entice those who are new to the market. But adopting a long-term horizon and dismissing the “get in, get out and make a killing” mentality is essential for any traders. This doesn’t mean that it’s impossible to make money by actively trading in the short term. But, as we already mentioned, investing and trading are very different ways of making gains from the market. Trading involves very different risks that buy-and-hold investors don’t experience. As such, active trading requires certain specialized skills.
9. Be Concerned About Taxes, But Don’t Worry
Putting taxes above all else is a dangerous strategy, as it can often cause traders to make poor, misguided decisions. Yes, tax implications are important, but they are a secondary concern. The primary goals in trading are to grow your portfolio. You should always attempt to minimize the amount of tax you pay and maximize your after-tax return, but the situations are rare where you’ll want to put tax considerations above all else when making trading decision.