Is trading really risky?

Is the buying and selling of stocks risky? Why do we often hear of both success stories of people who have made it big in the stock market as well as people who lose all their money in their stock "investments"? Why are some people more successful than others in trading stocks? Before we start putting our money into the market, there are some important mental preparation that we need to do.

What differentiates a trader from an investor? Often, the distinction between a trader and a investor is blurred. Investors are people who buy into things for the long haul ie. years so that their investment can appreciate in value. Investors buy into companies when it worth more to them than the market prices it, and only sell when the market values them much more than it is worth to them. They do not buy just a stock but is also concerned about the company and what it represents. In contrast, traders are not bothered by what the company does. Traders buy and sell stocks based on its price: they buy and sell for the short and medium term, taking profit and cutting losses when it is due.

What kind of mindset of do people start trading stocks with? Amateur investors who are eager to get into the market to lose money because they cannot understand the above differences. They may start buying stocks intending to be an "investor" but panic when their positions start losing money and switch into "trader" mode by offloading their stocks when it is not their initial intention to. Therefore, in order to make money from stocks, one must first decide their style and stick with it.

Another common problem that leads to loses in trading is by not being able to master their emotions. We are all emotional creatures that are affected by hope, fear, greed and despair whenever we take up stock positions. These emotions can affect our decision making process adversely as they cause us to make irrational choices in our trades. We must be aware of these undue influences by our emotions and learn to tame them.

As can be seen from above, trading is not an easy game to master as it has its inherent risk. However, if we are able to start with the correct mindset and approach, such risks can be managed while reaping in rewards at the same time. I view trading as an additional source of income and life skill that I would like to master in order to bring me closer to success. We should not just work for money but also let our money work harder for us, don't you agree?

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