Trading Profit

Trading profit, balance sheet ok

Trading profit, balance sheet ok—Philippe Put (Flickr.com)

What is trading profit?

A trading profit occurs when an individual makes a stock trade of an item he or she has held onto for less than a twelve month time period. Or in other words it is the profit made by someone who has invested in the stock market while holding that particular stock for a short period of time. However, if you are engaged in high frequency trading, a profit is usually calculated at the end of the day.

So, how does the average investor know when to cash out and get rid of their stock to make a profit? There are, of course, good times to do this and other times when it would make no sense. To understand when and how to implement their day trading strategies, an individual must be experienced in determining when to trade and when to leave things alone. Even the great Jesse Livermore himself said that there are times when you should just “stay out” of the market.

In our volatile economic market today, it is a must to have the expertise of an individual who really understands the ebb and flow of the stock market during an average trading day. Some would say now is the best time to learn, if you make it through, you’re golden. Others would say, now is the worst time to learn. The odds of success are stacked against the newbies like a tunafish in a shark tank.

The truth is, you should always stay out of a market that you do not have a strategy to trade. If the market is volatile, and you are a trend trader, stay out and let the volatility traders do their thing. If the market is trending and you are a range trader. Stay out and let the range traders do their thing. And if you are a newbie and don’t have a strategy, find out the types of strategies that are making money and become that style of trader. Once you develop a profitable trading analysis, you will be able to trade the market for as long as the current conditions last. Then, its back to the drawing board to do it all again. After a while, you will be skilled enough to trade any style market thrown at you.

Making trading profit be it from the stock market or Forex trading profit is not for individuals who have their money tied up in the markets in their 401K or retirement savings plan. Of course, individuals who have stock as part of their employee compensation package have a right to know what is going on with the ups and downs of the company stock at any given time. But they don’t “trade” these investments like traders do. Traders are not tied or attached to their trades in any way shape or form. They do not think about anything other than what the stock is doing right now.

Experienced traders look for patterns in a market to make trading profit. There are millions if not billions of different patterns within patterns and each trader sees something different. The first thing to do is to learn to see what’s there and now what you “want” to see. One of the biggest problems new traders face in not realizing that the beginning of a trend a range and a reversal can all start out exactly the same way. Don’t see what you want to see, trade what you do see.

The market is either a Bull one, where stocks are performing well and rising accordingly in price. Or the market is a Bear, one that is not performing well and declining. When the market is performing as a Bull one, the stock holder may decide to sell off their stock because a company has performed so well, they do not think that it will do any better (I,.e its over bought), This is called taking trading profit or just “taking profits” and may cause a short term reversal in a bull market. However, this is also the perfect time for a new bullish investor to jump in on the trend. Likewise, during a bearish market, sellers may oversell their positions as prices that are actually quite a bargain to a long term investor who will begin to buy on the way down. A day trader here may try and short sell the stock while longer term buyers are buying the stock upward on the down swing.

Experienced traders understand the times of the year when the markets are bound to be a little slower, i.e. summer. This means its harder to make a trading profit. The first part of any year can be somewhat of a down time when companies are making their tax payments and thus are not trading as much stock as they may normally trade. Other time periods of slow down are the late summer months when individuals who own stock and have college age children are making large up front tuition payments to colleges and universities. However, there is usually some sort of summer rally, and one thing is for certain, wall street can always come up with a reason to tell people to buy. Its important to remember however that most stock brokers are not traders, but sales people. This means they make money when they sell you something, not when you make money. Of course, if they keep selling you things that you lose money on, you wont buy from them again, so its in their best interest to sell you something profitable. The exception however, is when the market down turns. Here most people lose money, so the brokers use that as an excuse. Don’t fall for this. If you are not going to learn to trade yourself, find a broker who knows when to make a sell recommendation.

Anyone who has stock in the market is in it for one reason only, to make money. Making money is so important to those who own stock; no one wants to purchase stock in a company only to see a negative return on their investments. Unfortunately, that is rarely the case with trading. New traders almost always lose their money to the more experienced and better equipped traders. Its just the law of the Jungle, and the law of the Jungle says first you have to learn to survive, then you can learn to make trading profits.