12 Most Common Trading Myths - BUSTEDAs long as people lose money with trading (and that is like 98%) of the lot.
They will preach the bad word.
And this will lead to rumour which will create false beliefs - I.E Myths...
Well I've been trading for two decades and I'm going to put these myths to bed.
Let's go!
Myth 1: It’s a Get-Rich-Quick Scheme
Trading has long been shrouded in the myth of transforming anyone into an overnight millionaire.
But it’s an illusion. It’s what drives newbies and amateurs into the trading world.
And then a few months later, when they realise what it actually takes to grow an account.
They move to the next “best” thing.
Trading is a forever life-style that requires ongoing discipline and patience through strategic planning, knowledge and presteen execution.
And not to mention, it also involves periods of losses.
There are no shortcuts to wealth in trading, it’s a journey, not a sprint!
Myth 2: It’s Just High-Stakes Gambling
Trading is a form of gambling.
But strategic gambling.
It’s not like pulling the slots machine and having a chance of being right or wrong.
Or flipping a coin.
No, trading has an element of risk and reward control.
And it is based on nothing more than probabilities and comprehensive understanding of market trends, money management and analytical skills.
Unlike gambling, which is based largely on luck.
You have an element of control with the outcome. That’s through trading journals, back and forward testing and making stringent decisions.
Myth 3: More Risk, More Reward
Yes! If you risk more you’ll gain more.
But when you risk more, you can also LOSE way more.
With trading derivatives and leverage, you’re exposed to more than what you put in.
Sometimes 10 times, sometimes 50 and other times 500.
So, this alone should tell you how dangerous trading is.
When your portfolio goes to 0 – due to high risk – That’s it.
And many traders full port their accounts. And majority become the 98% losing stat of trading.
Stick to low risk, low return.
Keep consistent and the return will start adding up and you’ll reap the rewards in time.
Myth 4: Only the Rich Can Trade
The myth that trading is a club exclusive to the wealthy is just that, a myth.
Decades a go, you would have needed thousands to start trading and investing.
But no longer is that the case.
Some brokerages don’t even have a minimum with trading. You can start off with a demo or practice account.
As long as the competition and innovation picks up, trading will be cheaper, faster and more accessible.
Myth 5: Trading is Only About Buy low – sell high
Although this seems like a logical strategy.
It’s not the only way to profit.
Trading techniques like short selling allow traders to profit from falling markets.
Not only can you buy low and sell high.
You can also sell high and buy low.
Myth 6: More Trades Equal More Profit
Trading isn’t a game of ping pong.
You don’t just play as many times as you can in a day, to profit.
First, Overtrading can lead to rushed decisions, increased transaction costs, and significant stress. Patience often plays a crucial role in a trader’s success.
And second, it all depends on the market environments.
If the market is not trending, you can go long or short and still lose every bet.
Rember you still have to let the market move up or down a bit to make up for the trading costs!
And so you’re already at a disadvantage when you take a trade.
Sometimes the best move is to sit on your hands.
Neutral is also a position and a powerful position during certain periods.
Myth 7: Successful Trading Means Winning Every Trade
Even the most successful traders get knocked down by losses.
It’s the nature of the trading game.
What matters is the net outcome over a period of time.
Your job is to make sure the losses are small and the gains are bigger.
That way, even with a 50% win rate you’ll win and the profits will outweigh the losses in the long run.
Myth 8: Complicated Strategies Yield Better Results
You’ve heard of analysis paralysis right?
When you literally plant so many indicators on your chart it looks like a Jackson Pollocks Christmas Tree painting.
Complication does not equate to success.
You’ll learn that:
Too many indicators will conflict with each other.
You’ll struggle to back test a system.
You’ll struggle to find high probability trades.
You’re making it more complex than it needs to be.
And most important… You need to learn to KISS (Keep It Simple Stupid).
Often, the best trading strategies are the simplest.
What’s essential is understanding your strategy thoroughly and executing it consistently.
Myth 9: You Need to Monitor the Market 24/7
Thanks to stop-loss orders and other automated tools, you do not need to be glued to your screens all day.
The most important attention you’ll need to apply is trading layout, setup and execution.
Once you’re done and the trading levels are in place.
Go live, do something else.
Don’t be a nerd.
Enjoy life.
Trading requires attention, indeed, but a healthy balance is crucial to maintain clear-headed decisions.
Myth 10: Markets Are Always Rational
Markets, unfortunately, aren’t always rational.
Just like you learn in school. There is ideal and real ways of the world.
Sometimes, the market is one clusterfreak of confusion.
Correlations don’t work according to the book.
Trends don’t match up the micro and macro analyses of companies.
Good news doesn’t mean strong uptrends.
Markets are run by many, many, many other factors.
They can be swayed by demand, supply, algorithms, Smart Money, greed, panic, emotion, rumor, and corruption and manipulation.
This will lead to price distortions.
There is a famous quote attributed to Great Depression-era economist John Maynard Keynes –
“Markets can remain irrational longer than you can remain solvent”.
Myth 11: Brokers Want You to Lose Money
Yes there are a ton of brokers who make money when you lose.
But reputable, credible and top regulated brokers – do NOT want you to lose.
They make their money from brokerages, spread and from trading volumes.
They want you to succeed and grow. Because if you blow your account, they lose a client.
Hence, when brokers approach me I always tell them the importance of education, guidance and helping them SUCCEED.
Myth 12: Once a Successful Trader, Always a Successful Trader
Market conditions, strategies, and personal circumstances change.
If you want to be a successful trader and remain one it requires constant learning, adaptation, and diligent risk management.
This includes me!
Despite how long I’ve been in the markets, I treat each day independently. I follow my system, risk management rules. I look for future opportunities and prospects to improve my trading, platform, journals and even testing.
This is forever an alive game that requires action. We are always learning, growing, improving and adapting.
Like they say, past success doesn’t guarantee future profits.
Let’s sum up the 12 common Trading Myths:
Myth 1: It’s a Get-Rich-Quick Scheme
Myth 2: It’s Just High-Stakes Gambling
Myth 3: More Risk, More Reward
Myth 4: Only the Rich Can Trade
Myth 5: Trading is Only About Buy low – sell high
Myth 6: More Trades Equal More Profit
Myth 7: Successful Trading Means Winning Every Trade
Myth 8: Complicated Strategies Yield Better Results
Myth 9: You Need to Monitor the Market 24/7
Myth 10: Markets Are Always Rational
Myth 11: Brokers Want You to Lose Money
Myth 12: Once a Successful Trader, Always a Successful Trader
Can you think of anymore?
