This is a subject that most beginners need to understand. The goals of an active trader and a passive investor are two really different things. You should adjust your goals to the style you fit into. I tend to be more of the passive type of investor; however, I know booth of them are extremely profitable.
What is your tolerance for risk?
This is an important thing to keep in mind when you are trying to decide which style you fit into. Most people avoid active trading because it is risky, but I am not sure I would go as far as saying passive investing is less risky. Many people are their own worse enemy when it comes to trading. They second guess everything and that loses them money by overtrading or holding trades for too long. The long term passive investors are not buying and selling securities as often so that means you don’t care about the daily fluctuations as much as an active trader.
How much time are you dedicating to trading?
This is a major factor in determining what you should do. I am writing about this from a none bias perspective and feel if you are busier than the average person stick with passive investing. I will use myself as an example. I work a full-time job, go to college full time and run a business. I don’t even have time for a woman right now. I could be a successful active trader but not right now. Unfortunately, I just can’t put in the research to make that many trades. With my passive investments, I spend an 4 to 6 hours per quarter per investment watching them.
What is more suitable for your lifestyle?
One of the wisest people I have listened to on investing explained a concept of an investor profile to me. This man won 20 libber awards and made a lot of clients wealthy. His explanation is that our investor profile changes with age. As a young man, I feel like active trading has more rewards and since I have time, I feel like I can make the money back if I need to. If you are hitting the age of 50 or older this might not make sense for you any longer. Having a low-risk annuity might be wiser for your lifestyle.
What is Your Skill Level?
It is important to get a feel for what your skill level is before you choose one of these methods. With active trading, you need to have skills and be able to make decisions quickly. That is why I recommend a training program for FOREX. It is a fast paced market and you need training before you get in the game.
I wish that I could give you a clear cut answer on this subject. I would use a practice account and learn about the market before you trade real money. Your personality might make you perfect for a certain trading or investing niche.