Tides, Waves and Ripples
Stock prices have three movements. They are known as the tides, waves and ripples. The primary trend is the tide, the secondary trend is the wave and the daily movements are the ripples.
When you are watching the movements of the sea, it is difficult for you to know whether it is high tide or tide. But if you plant a stick at the shore where the water reaches it, and watch the wares coming in and going out you can easily determine whether it is high tide or low tide. When the waves that come in show higher marks on the stick, you know it is high tide. In a low tide, the marks will be reversed.
In stock prices, you look at the highs and lows. A higher high and a higher low means that the market is on an uptrend. A lower high and a lower low indicates a downtrend.
Bear in mind that trends move in trends. This means a trend in motion is likely to continue in the same direction. Thus, you do not buy in a downtrend or sell in an uptrend until the trend is reversed or has shown signals that it is about to reverse. If you do not know TA (Technical Analysis), charts will be of no use to you.
An investor will not worry about the ripples which are the hardest to forecast. But to a day trader, these movements are the ones that matter most.
A day trader does not carry position overnight. Make or break, he will clear his position at the end of the day.
Can a day trader make money? A professional one probably can. But for an ordinary one, his chance is close to zero. He may win some and lose some, but on balance over a year, he is likely to lose. High transaction cost which includes stamp duty is high. It eats away your profits, if any.
The problem with most traders is that they tend to over estimate their skill. They think they are professionals when in actual case, they are not. When they win, they say they are good, but when they lose, they say luck is against them.
From my experience, I find that when you invest, it is easy to make money, but when you trade, it is difficult unless you are really good.
I have always consider myself an investor. However, there people who consider me as an trader.
Well, If I am a trader, then, I must be a great one, simple because I have been making lots of money in the last fifty over years.