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Things to Know about Trading as a Source of Income

Things to Know about Trading as a Source of Income

There is a fundamental question bothering every trader. This can be anyone between a starter to a professional one. The answer to the question of whether trading currencies or other assets can make a living for a person goes still unanswered. We always read stories about such individuals who became rich in the foreign exchange market or cryptocurrencies or just stocks in general. As time passes and the experience gets accumulated the reality slowly sets in though. There are two different answers to two different questions here. Yes, it is possible to make an additional income from trading or maybe even make a full time living off of it. Although this may sound optimistic to some it is still a reality that everything depends on an individual trader. Not only that but the sheer luck factor is also determining a lot in this field. 

It has been almost 15-20 years since the first time when people started trading on their own. Back in the day used to be that only people working for huge financial institutions, brokerages, and trading houses were able to do anything remotely connected to trading. With the development of IT technology and infrastructure, the platforms came to be which assist the individuals in trading from home, from their computers, smartphones, and tablets. Technology has become accessible to a lot of people but not everyone makes it to the spotlight. When it comes to a successful foreign exchange market (Forex, FX) traders George Soros is the name that always comes up. This is the person who managed to find ways to trade forex for a living and has stricken rich while doing so. However, just dropping out of college to follow the footsteps of Bill Gates, Steve Jobs, and Mark Zuckerberg is not a good idea so is quitting your job and focusing only on trading. 

The success, whether small or big, in this sphere, is highly determined by the ability to make quick but rational decisions from the individual trader as well as developing a proper intuition and quite a bit of luck. The biggest factors overall are knowledge and experience.

What we need to understand before stepping into the business of trading is that it is an extremely risky and responsible business. This means that it is strictly not recommended to drop everything that you have and just start trading. In general, the learning process is steep and associated with trial and error meaning that huge amounts of assets will be lost before one starts to grasp the strings controlling the market thus making the profit possible. However, we can still go through some of the different types of trading which people utilize to make a profit.

Scalping

Scalping is the type of trading that is done in the smallest time frames. Scalp traders only hold positions open for minutes or seconds before closing and making the small profit from the change in the prices. The idea is to make a lot of small profit trades. This means that the revenue accumulates throughout the day thus making some kind of real profit in the end. 

This type of trading usually requires a good internet connection as well as a fast operating website. Being in close proximity to the exchange also will help. Scalpels like tight spreads and liquid markets meaning that they usually trade with currency pairs on Forex mostly because of the bigger trading volumes as well as the liquidity of the market. These can be anything from the United States Dollar (USD) – Euro (EUR) to Great British Pound (GBP) to USD or even USD to Japanese Yen (JPY).

Scalpers usually trade during the most loaded periods of time when there are the biggest number of traders on the market due to the volatility and the trading volume of the market. This is quite a risky endeavor and may net you some kind of income in the end but requires a lot of knowledge to operate successfully.

Day Trading

Day trading is a method for people who like having a bigger timeframe for their trading, however, do not want to leave the market unattended overnight. Day traders usually exit and enter the positions on the same day (hence the name) thus avoiding the risks of any late-night swings which may happen when they are tightly sleeping. The difference between scalpels and day traders is that the trading position is usually open for a longer time. This may be anything between minutes and hours. At the end of the day though the trade is closed and the day trader walks out either with a loss or profit. There are loads of risks associated with day trading and can result in the loss of invested money. The generated amount is considered to be small, which add up to create profits.

Some of the most important benchmarks day traders pay attention to are Relative Strength Index, Stochastic Oscillator, and Moving Average Convergence Divergence (MACD). These instruments help day traders identify trends as well as market conditions to make more informed decisions.

Swing Traders

Swing traders are quite the opposite of day traders. Instead of holding the position for one-day swing traders are usually keeping their options open for a couple of days or even a few weeks. This means that since the positions are open for a couple of weeks and the system is looking for short-term market moves the traders do not have to sit at the computer all day looking at the markets moving. This is a comfortable option for people who have other responsibilities like full-time jobs. Only a few hours a day are required for such trades. 

These traders utilize trading strategies like trend trading, momentum trading, breakout trading, and counter-trend trading. 

Position Trading

Position traders are the most long-term oriented out of the bunch. This means that these are the people looking out for the long-term price fluctuations to make a profit. They look out for the maximum potential profits gained from something major happening. The traders have their positions open over a couple of weeks, months, or even years. This is the type that is commonly utilized by those who trade in highly volatile and liquid assets. 

Due to the fact that position traders are looking for major shifts in price their positions do not need to be paid attention to as much as one would think as they are looking for a major shift that sometimes even hits the media headlines.

Conclusion

Overall, any of these methods can yield some kind of profit however it is all dependent on the ability of the trader as well as other responsibilities one has. It is worth noting that none of this is possible without a good amount of knowledge in this field. Experience and understanding the mechanisms of the market determine the outcome of the trade.

Essentially, the whole ordeal is increasingly risky and thus everyone investing money into trading should be ready to lose it all. This is why it is always recommended to trade with extra money that you have instead of the primary income required for living.

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