I’m sure you’ve heard stories of someone who began trading in the stock market with a small amount of money and ended up with a portfolio worth millions. I’m not talking about investing over a period of 30 or 40 years. I’m talking about taking a small sum and cash and turning it into a million or more in less than 5 years.
One of the most well-known stories is Timothy Sykes who took $12,415 from his Bar Mitzvah and turned it into $1.65 million in less than 5 years. Timothy is not alone. There a countless others that have been equally successful and many more who have attempted a similar feat and lost it all.
Why are the results so different? What is that secret that causes some short-term traders to be so successful?
The Most Important Factor in Short-Term Trading
Short-term trading, also known as day trading, is the process of buying stock, holding it for no more than a few days, then selling. The goal, obviously, is to buy low and sell high. Since fundamentals typically don’t play into short-term price swings, the day-trader primarily relies on technical analysis.
Technical analysis has it merits, but it also has a big fault. It’s very susceptible the trader’s emotions. These emotions are the most important factor in short-term trading.
When a trader has real money on the line, it’s very difficult to make objective decisions. They may know in their mind the triggers on which to buy and sell, but their emotions cause themselves to second-guess their decisions.
Taking the Emotion Out of Trading
Traders often have a number of psychological games that they play to block their emotions, but it takes hundreds of real trades to fully numb those subjective decisions. There is one short cut, however, that makes this process much easier – the use of computer software to perform the analysis and indicate key buy and sell points.
Over the last several years, a number of programs have come on the market that perform real-time analysis of the market and provide the trader with alerts when a stock is following a certain pattern that signal it to be a good trade. For example, stock analysis software by eSignal uses Elliott Waves, Fibonacci and Gann tools to find over 20 predictive indicators. This lets the trader easily find entry and exit points without worrying about their emotions clouding their judgment.
Finding the Right Tool for Your Trading Style
Technology has progressed to the point where incredible trading tools like this are widely available. The trader today has access to significantly more information that those trading 5 or 10 years ago did. Though, it has added one additional level of complication for a new trader. They now have to choose from a long list of trading platforms and software suites.
The good news is that many platforms are extensively documented and have free trials available. A trader should test-drive 3 to 5 software packages to find the one that fits their style and preferences. The homework done up front is well worth it and can make tens-of-thousands of dollars worth of difference.
Be sure that you are fully comfortable with a platform before you make your decision. Remember, the goal is to use this technology to remove the emotional element from trading. If you are able to do this, you’ll have beaten the problem that causes so many traders to fail.