Börsenlexikon: Trading

Trading is the short-term buying and selling of securities on the stock exchange in order to profit from temporary price fluctuations. Traders are short-term thinkers, but unlike speculators, they do not base all their decisions on market psychology. Rather, they strive to incorporate some basic understanding of economic fundamentals into their trading strategy. Conscientiously, they gather information on factors such as interest rates, commodity prices, government policy and regulatory changes, international trade agreements, and so on. Then they assemble this information, including past stock price performance, into sophisticated charts and spreadsheets, looking to identify certain patterns that they believe will repeat in the future and thus create profit opportunities. In other words, the trader's goal is to profit from perceived patterns in stock market price movements. The crux of the matter is that patterns only become apparent in retroperspective. Most traders rely on past constellations in their assessment of future developments. For this reason, trading is often referred to as the "rear-view mirror process." It works as long as the future resembles the past. However, as many have painfully learned, the future is unpredictable, so trading strategies tend to fail at some point. When it suddenly becomes clear that today is not yesterday, market players with a trader's mentality are often unable to adjust their models and actions.