Friday, May 01, 2009

Trading is like Farming

An analogy I just thought about is farming. Being a trader and investor is very much like a farmer.

We only have so many seeds to sow (capital). We need to constantly decide where to sow our seeds.

Trader - Invest in short term or long term securities (short swing trade or longterm investment)
Farmer - Plant crops that grow quickly or slowly

Trader - Buy and sell at what price based on information and speculation
Farmer - Buy and sell seeds at what price, will the seed prices rise or fall? Sell your crops now because you think prices will fall, or sell later because you think prices will rise?

Trader - Take a percentage of annual gains away from trading account into savings account. For spending and for a rainy day
Farmer - Take a percentage of crops and keep it stored. Wheat, rice can be eaten should you expect a draught to feed the family.

Trader - Mr Market forces are strong. Many things you cannot control and can get wrong. The markets can be brutal and trades can always go against you
Farmer - Always at the mercy of Mother nature. The climate, floods, droughts, pests. All can destroy your hard work and leave you devastated.

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