Why Do We Trade?

The obvious answer to the title question is, of course, to make money. The not so obvious rationale behind risk taking is another matter.

A neophyte day trader seems to act as a result of an adrenaline rush and is usually wiped out after taking shots, and missing, helter-skelter, based on Cramer or CNBC hyperbole, or some such nonsense.

A neophyte gunslinger acts on fear and greed. Oddly, an experienced trader does the same except that he or she is monitoring the neophyte's fear and greed. The difference is a function of interpretation of the same data that both traders use.

An experienced trader, knowledgeable in the fact that trading is not about getting an adrenaline rush, seems to be more predictable in his or her course of action. The irony is that he or she is watching the predictability of the neophyte.

Mr. or Ms. Experienced has a plan and they execute the plan. They stalk their potential trade. They make observations and generally connect the dots regarding the why of market action.

Experienced traders know they must have the odds in their favor before entering a trade. A hip-shooting beginning day trader is already spending the profit he or she doesn't have, oblivious to what can go wrong.

Experienced traders know that reading the charts, as helpful and insightful as that talent is, is not the Holy Grail of trading. The beginning gunslinger only sees the one indicator, out of many, that is favorable to his predetermined expectation of direction. The beginner sees that one bullish or bearish indicator and shuts out all others because that's the way he/she wants to see it. Experience knows to look at the entire graph, many indicators, plus the general market, the sector charts, and those items off-chart, i.e., news, sector, industry, etc.

The new market fodder, our neophyte, must carry with him/her a neck brace for the whiplash that surely follows. Our experienced traders, healed from their own whiplash days, know when and why to hold a trade and when to cut it loose.

Both types of traders are acting on fear and greed. Both types are acting on observable data. Yet, one will survive and one will not.

We trade to make money, but appreciating the risk and working with it is a learned attribute.

Beginners, if you're going to take the risk, why not learn everything you should about trading before you need that neck brace?