Market makers are responsible for continuity and liquidity in the market. It is usually an individual for a firm that quotes both a buy and a sell price for stocks that they currently have in their inventory. They hope to make a profit on the spread, (the difference between the bid and offer).
I always try to tell people what they need to do in order to have a legitimate shot at become a successful trader, but it dawned on me that I rarely point out the equally important factors that cause as many as 90% of all new traders to fail. By fail we mean lose money since that is what this game is really all about, success equates to making money while failure is associated with losing money.
So let’s assume you’ve been following a stock and you feel good that all the signals you depend on to identify a potential buy are in place but you still would like a bit more confirmation before pulling the trigger. You need to know that this stock is primed and ready to go. It’s a hard decision to make, wait too long and you risk missing the move, jump in too quick and you may end up scrambling to get out.
The need for speed is a phrase that comes up frequently among those swing and day traders who use the news wires to identify potential trades. The news wires are constantly putting forth new stories containing information that can affect the value of a stock. How the trader interprets this information will determine the position he decides to take, if any.
Many of you who have read this blog, or have sat through some of my seminars way back when day traders were called SOES bandits, (named after the old Small Order Execution System) have heard me say ‘Trading is not Investing’ hundreds of times. It’s still true today. The mindset of a trader is considerably different from that of an investor and although the ultimate goal for both philosophies is to make money, the approaches to that end are very different.