I have come to terms with the way to trade certain financial instruments lately - Learn from the Experts! I think I might have paid way too much money for this lesson, and hopefully this post can help you save that money.
Stocks - Do it like Warren Buffett. The tested and proven way is value-based investing for stocks. Read up on the company, their prospectus and balance sheet. You can't miss too far when a guy already became one of the richest in the world using this strategy.
Options - Use these as steroids for stocks to speculate on short-term momentum. Can be used for hedging purposes too. By all means go for those cheap calls or puts and remember to be on the buy side. The sell side has unlimited loss potential and needs even more sophistication to handle the risk.
Futures/Forex - System-based trading hands down. Do it like most market wizards, for instance, Ed Seykota. You have to be extremely skilled to be able to control your emotions in a higly volatile market. Formulate a strategy, back-test it and leave it all to the computer. The computer can't be too emotional.
My advice is to treat these as the core and add in your own devices and deviations, so that you won't have to waste too much time and money. These should form the material for your trading, for example, value-based investing can be referred as lego blocks and system-based trading play-doh. With the right material, you can figure out how to form a skyscraper like what Warren Buffett did or something more magnificent.
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