Trading is different than investing. Simply put, trading is short-term, investing long-term.
The goal of investing is to gradually build wealth over an extended period of time through the buying and holding (and selling at a appropriate time) of a portfolio of stocks, ETFs, bonds, and other investment instruments.
Trading involves more frequent transactions, such as the buying and selling of stocks, commodities, currency pairs, or other instruments. The goal is to generate returns that outperform buy-and-hold investing. While investors may be content with annual returns of 10 percent to 15 percent, traders might seek a 10 percent return each month.
Trading is hard work. Don't let anyone fool you. But if you're interested in this, it can be rewarding. However, you must have discipline and be able to follow rules. Most traders blow up their accounts. But the good ones follow certain habits. These habits can work well for investors also.
1. Successful traders are patient with winning trades and extremely impatient with losing trades. Let profits run, and cut your losses. When I first started trading futures, I would set my stop for a $500 or $750 loss, which is well within guidelines of not losing more than 2% of my trading portfolio (not my retirement account) per trade. Since then, I'm very aggressive with stops, and won't accept any more than $200 loss, even less. My returns are much improved, because I can be wrong more than right, and still make profits. As Warren Buffet says the two rules of investing (which applies to trading) is 1) don't lose money and 2) see rule #1.
2. Successful traders realize that making money is more important than being right. Do what the market tells you. Don't let it slap you in the face, because it will. The market doesn't care about you. Face it. If you think the market is going to go up, and it doesn't, it's OK to be wrong and switch sides (going short instead of long).
3. Successful traders learn how to read charts. Technical analysis can provide clues to whether traders are buying or selling, on average. I pay attention to fundamentals, but don't buy or sell without looking at the charts or market technicals.
4. Before entering any trade, they know exactly where they will exit for either a gain or loss. This probably should be #1. A successful trader (or investor) calculates both risk and gain before entering a trade. They use stop and limit orders to set both losses and gains. For example, I decide my entry point on a stock is $30. I also decide, before I enter the trade, that I am not willing to lost more than $1 per share, so I place a stop at $29. I also calculate that I want to exit the trade at $35, so I place a limit order there. These stops and limits can change while I manage the trade, but I've decided BEFORE I place the orders. And never lower the stop. You can move the stop up, and move the limit up. If you get stopped out for the $1 loss, you can re-evaluate and re-enter at a later time.
5. They have a trade plan and stick to it. Consistency and discipline are important. They also keep a journal of trades. This allows them to learn from their mistakes, or trades that go wrong.
6. They don't try to pick tops and bottoms. It's extremely difficult to see tops and bottoms. Prices at all-time highs can go higher and prices at all-time lows can go lower. As an example of this, at the time I'm writing this paragraph, the prices of a September contract of Natural Gas hit $2.08 on Aug. 2, a 20-year low. Certainly it couldn't go any lower. Right? Wrong! It opened on Aug 4 and hit $2.067 before recovering slightly to 2.078. So record lows can certainly go lower. The bottom can only be confirmed when the trend changes. Trade with the trend; you'll make more money. The old saying, "The Trend is Your Friend" has a basis in fact.
Some more ideas on trading, from a professional trader, here.
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