Different market participants
Trading can be a confusing matter, especially for those who are new to investing or trading. Two types of market participants basically meet on the market: investors and traders. Investors have a different orientation than traders. While investors are interested in the long-term growth of a company, traders are guided by the principle of “buy cheap and sell expensive”.
For a trader, this means that only the price is important. The trader makes his profit exclusively through the price. His goal is to buy cheap and sell expensive, but there are many factors that can influence the price, such as news events, economic data, and market sentiment.
There are two ways for a trader to make money: Either he influences the price and thus has guaranteed profit, or he needs a strategy when there is no guarantee. In most cases, a trader cannot directly influence the price and must rely on a strategy to make a profit.
A strategy is based on probabilities, which means that it must be less than 100% hit ratio – otherwise it would be a guarantee again. But as soon as we have less than 100%, randomness comes into play, i.e., the sequence of positive and negative trades is subject to chance. Probabilities are based on mathematics, and trading is a mathematical zero-sum game. This means that for every winner there is a loser and the total gains and losses ultimately balance out to zero.
The law of probability
This results in the law of probability. If a trader follows this law, he will logically make money. If not, he will not. Laws have a habit of leading to consequences. In trading, these consequences can be either positive or negative.
So, which side are you on? Do you have a guarantee that you will make a profit with trading? If not, then you need a strategy. The good news is that there are many proven strategies that traders can use to improve their chances of success.
Success with trend following
One popular strategy is trend following, which involves analysing the trend and its price over time and buying or selling accordingly.
No matter which strategy a trader chooses, it is important to remember that trading is a game of probabilities. No strategy can guarantee a profit, but a well-thought-out strategy can increase the probability of success.
It is equally important to manage risk when trading. This means setting stop-loss orders to limit potential losses and working with diversification to spread risk across multiple stocks or asset classes.
In summary, if you don’t have a guarantee, you need a strategy. Trading is a game of probabilities and therefore of mathematics. Whether I submit to it or not is up to the trader. However, he must also bear the consequences of his trading.
If you want to join the success of trend following or logical trading, you should definitely take a look at my education programme Trading with Logic.
