Top 10 Reasons Why You Should Trade Stocks

Top 10 Reasons Why You Should Trade StocksWednesday February 6, 1:08 pm ET
By TradingMarkets Research

Extract:

More Information Than Ever Before

The economic boom of the 1980s and the financial boom of the 1990s led to a proliferation of finance- and business-oriented newspapers and magazines. And the majority of this new financial media was all geared toward the same purpose: helping the average trader get a piece of the action.

Nowadays, researching information about both specific stocks and the stock market in general is one of the most popular past-times on the Internet.

For traders looking for information about companies, managements, earnings, balance sheets, and even rumors and insider buying, there is more information more readily available than at any time in the history of finance. Retail traders can now listen in on earnings announcements and conference calls that were restricted to professional stock analysts only a few short years ago.


Profit in Up Markets and Down

Trading stocks -- as opposed to simply investing in them -- means you can make money whether the market is moving higher or lower. When markets are moving higher, you can buy the breakout, ride the trend, or if you are already long stocks, sell into strength. When markets are moving lower, you can sell breakdowns short, ride the bearish trend downward, or buy the dips. As a trader, all you want is volatility -- direction is a secondary issue. As long as stocks are moving, you will always have a chance to win.

Easy to Buy, Easy to Sell

Stocks are highly liquid. Unlike speculating in real estate or starting a business, stock trading is a purely financial endeavor that requires very little in the way of equipment, inventory, or a virtual fleet of salesmen, appraisers, inspectors, agents and other middlemen that are required personnel when it comes to many other ways that people have traditionally tried to make money. Trading stocks not only allows you to be your own boss -- it allows you to be your own, sole employee, as well!


Outperform Mutual Funds

For investment, and for those with little time to devote to the markets, mutual funds are a perfectly legitimate option. But for those with a little more capital and a little more time, trading stocks is a far more effective way to make money than trading mutual funds.

Although many stock traders have attempted to trade mutual funds, many mutual fund companies have increasingly imposed steep fines and penalties to restrict accountholders from trading mutual funds in their accounts. Not only do stocks not have this problem, but a portfolio of well-chosen stocks -- such as the high PowerRating stocks published by TradingMarkets -- has been shown to beat the market by a significant margin since 1995.

More Tools than Ever Before

Along with the overwhelming amount of information available to retail stock traders today, there are more tools that traders can use to analyze stocks on their own. Analytics, charts, and trading message boards are just a few of the tools and resources that are available to do-it-yourself stock traders. Gone are the days, for example, where technical analysts and chartists were required to hand-draw charts after the market close, tediously updated their graph paper charts with all the attention (and efficiency) of a medieval monk.

Now, with a click of a mouse, traders not only have eye-poppingly informative price charts to study and analyze, but the sheer computer power available to retail traders of all types makes it possible for the average guy (or gal) to be able to test and backtest trading strategies, experiment with technical indicators, and review and process far more stocks in a short period of time than would have ever been possible in decades past.

Intellectual and Emotional Challenge

Most people who trade for any length of time become interested in the mechanics of trading, sooner or later. This is often true even if they start out with a service that just provides entry and exit signals. Whether that means looking at a price chart (such as our PowerRating charts) to confirm a recommended buy or sell, or using other technical or analytic tools to understand how a given system or service makes the recommendations it does, the desire to want to "look under the hood" and see how a certain trading system really works is both an understandable and a healthy temptation. Many traders have referred to trading and trading systems as being like putting together puzzles, calling it some of the most intellectually challenging work they've ever done.

Not only can trading stocks give your brain a workout, but also your heart is likely to feel more than a few heavy thumps as you embark upon your trading career, as well. Anyone who has traded stocks for any length of time will tell you trading stocks is one of the toughest vocations you can get involved with in terms of playing with your emotions. The idea that trading is 10% method or strategy and 90% psychology is no secret among stock traders, who know that even the best stock trading system or method will fail if the trader does not have the requisite confidence and discipline to follow it.

Opportunity to Make Money

Last, but not least, trading stocks provides a great opportunity for people to make money outside of their 9 to 5 (or 8 to 6, nowadays) jobs and careers. There are a variety of techniques -- from intraday and "day trading" to swing trading to position trading -- that stock traders can choose from, making it possible to find a trading style that matches both their person (i.e., full-time worker, student, retiree, work-at-home parent) as well as their personality.

One of the best things about trading stocks is that there really is no "one way" to trade stocks. Contrary to popular wisdom, there are plenty of people who make a fine second income trading stocks -- and almost none of those people trade in the exact same way. Moreover, many popular myths about trading -- from the idea that technical analysis doesn't work to the notion that you cannot trade unless you use stop-loss orders to the idea that buying low and selling high is not as effective a strategy as buying high and selling higher -- are really just that: myths and habits that have worked for some, and not worked for others.

The trick is to find a method that works for you, test it, and if the tests are good, trade it. Who cares what anybody else thinks about your personal style of trading -- as long as you are making money?

So, Do You Wanna Be a Stock Trader?

Like a lot of activities that take a great deal of skill and focus, there really isn't any way of determining whether or not you have the necessary confidence and discipline to trade stocks until you actually begin trading stocks. Paper trading and trading simulations are very helpful for traders to master the mechanics of trading, the placing of orders, the management of positions, and so on. But the only way you will know if you have what it takes to trade stocks is, to put it bluntly, to start trading stocks.

Invest for retirement, looking to buy and hold the best stocks for as long as possible. Start a business if you want to get rich -- as the saying goes, nobody ever got rich working for somebody else. But to simply enhance your lifestyle, to make everyday living that much more potentially rewarding and secure, or to afford those creature comforts that provide just the right amount of spice to life, there are fewer better methods than trading stocks. And no better time than the present to get started.

David Penn is Senior Editor at TradingMarkets.com