Surprisingly, there are many myths and misconceptions floating around in the trading world. The most unfortunate thing is to know that several novice traders and many mediocre believe them to be true. So, in general, if you start to listen to amateur traders’ talk who luckily won a few trades in the stock market and began giving lectures, then you will be making a huge mistake. For the betterment, in the long run, stay out of this nonsense impression. Plus, remember, a mistake is a mistake even if the whole world is engaged in it, and you will suffer the consequences in the future.
Let’s stick to the whole article and study it thoroughly so that you can uncover the common trading myths floating around the stock marketing world for a long time.
Myth 1: Trading is All About Getting Rich Quick Scheme
It is the biggest myth about stock trading that some new and amateur traders usually believe. Further, as their mindset is to get richer quickly from the beginning, they enter the stock trading world with many expectations and fail miserably.
Remember, you can not be a millionaire overnight just by trading. Basically, trading is a long process and will take time to develop. You can make money through trading only if you follow the proper techniques and work on essential factors like Risk Management, Top Indicators, etc.
At the same time, handling your Capital is a crucial matter. Even if you are not making a penny in the initial days, it doesn’t matter. Being able to preserve your money is also called gaining. At last, when you will gradually learn the trading process, you will be making a lot of money in general.
Myth 2: Trading is Gambling
If you are not trained, then everything is gambling. Suppose you have decided to build a home and employed some masons and labourers. But all of a sudden, you came to know that the masons you have hired are not skilled at all. Do you think that your home will be built up well? Simply no. Similar is the case of running a business, driving a car, etc. can be termed as gambling. Let me explain how it will be. Imagine you started a production business without knowing where you would get the raw materials, good transportation service, labourers at a cheap rate, then you also are gambling with your money. If you wish to be a businessman or a driver, you have to learn the techniques well. Otherwise, you will fail badly.
Now analyse the real-life examples effectively. Finally, you will get to know that whatever you do requires dedication and practice to improve. Nevertheless, stock trading is no different. You can turn the table into your side with your commitment, not being emotionally attached. Moreover, trading involves risk, and the greater the risk, the better the reward. But remember to apply a set of regulations, such as following stop-loss rules, your own trading research instead of any amateur’s tip or market news, etc. I hope the concept I’m trying to provide shows that trading is not gambling.
Myth 3: Trading Requires Plenty of Money
Many a time, amateur traders think that one who has more money can only make a profit from the market. But the truth is that you will not need a lot of money to start trading. You can generate excellent returns irrespective of account size. Also, trading with higher capital costs you enormous losses for your mistakes. So, the better thing is to lower your trading account size to a sufficiently meaningful amount that doesn’t bring ego in yourself.
I’m not saying that you should not do trading with higher capital. But when you start, you should do it with a small amount. It is because, in the initial days, you will make several mistakes that can make you bankrupt. Further, you will need time to learn the process practically. But once you learn the techniques finely and have got a large amount of money, then do it conveniently.
Myth 4: Higher Time-Frames Are Easier to Calculate
This concept is not as easy as few traders think. Generally, neither higher time frames are easier to trade nor lower time frames are harder. Choosing the time frames is a personal preference, but you should select them as per your trading style. Suppose you want to trade on a short-term time span, then you also have to check the short-term time frames and vice-versa. Last but not least, if you have made up your mind that only a certain type of time frame will work for you, then get out of this myth as soon as possible. You can make trades in your comfortable time frame, but always remember to check the nearby lower and higher time frames as well.
Myth 5: Indicators Don’t Work
Most beginning traders are ignorant when it comes to using and understanding the indicators. Basically, indicators do not provide signals of when to buy or sell. These only help you to give an overview of what your next move should be while trading. Furthermore, being a trader, you have to understand why we use indicators to use them properly. Finally, it’s your job to interpret the information from those indicators, not the indicators’ job to predict the price movements.
Myth 6: It’s Difficult to Trade Online All by Yourself
Keep in mind that trading is a process that you have to learn step by step. It’s not a drink that you will gulp in one breath. Nevertheless, many novice traders need reassurance before they ultimately place their trades in the stock market. For this to happen, they either contact their dealers or visit their brokers in person. Here comes the dealers or brokers who charge their clients a handsome amount of money for their service. Plus, sometimes, they even suggest to their clients not to hold the stock for a long time even if it is beneficial for clients, just to earn a few extra bucks. So trust your instinct and research that will save your money as well as time while trading online.
Myth 7: Justifying Bad Trades with Higher Reward-Risk Ratio
How frequently do you consider the bad trades as good ones just because of getting a higher reward if won? It’s a common practice among amateur traders that is increasing daily. Keep in mind that legitimising the bad trades with a probable high reward-risk ratio is a bad practice and can make you face a huge loss. In stock marketing, you are in charge of controlling your risk in the trades by setting up the stop loss and correct position sizing. But you will have no control over the potential outcome. By the way, a large reward-risk ratio does not say anything about the trade. So if your criteria don’t match with a particular stock that you want to do trading where the probability of losing is high, then it’s better not to do it just because of greater payout.
Myth 8: Never Risk More than 1%
It is another myth that is generalised among beginner traders. Whatever the risk ratio is, it varies from person to person. So, either it is 1%, or 2%, 4%, or even more, it doesn’t matter.
Typically, the position size depends on a wide variety of factors and personal preferences. Remember to calculate the reward-risk ratios, and based on your indicators and loss-facing ability, take the trades.
Myth 9: You Have to Know the Future of the Market to be a Pro Trader
Several people believe that a successful trader or investor who makes consistent profits knows everything about the future of the market. It is not true at all. In fact, no one knows about the future of the market, but all they do is work on the probabilities. Like every other white business, there are two outcomes: profit or loss. Not all the time, you will win. But keep trying to win more and lose less. In order to get in favour of this technique, you have to work on the previous chart patterns, analyse the economic changes in your country, and be a master of at least one trading strategy.
Myth 10: Higher Screen Time will Make You Become Better
Just looking at a chart will not help you become a better trader. You will need practice, preparation, and analysis to become a good trader. Let me explain to you with real-life examples. A footballer can not become a better player during the 90 mins of play at each match. He has to play 3-4 days a week at least in order to improve. At the same time, a cricketer does not advance his shots or bowling figure if he is a batsman or bowler, respectively. He has to practice hard on the nets, and then only he can get better results. Hence, trading is no different. There is no need to place many trades and face huge losses to become a good trader. Instead, you have to prepare your trading style, check the previous patterns, examine the performance, etc.
In addition, do not waste your time glued to a screen. Just make a constant effort to plan trades in advance, initiate a detailed trading plan, set alerts during the trading sessions to avoid monitoring charts. Finally, execute a meticulous post-trading performance in your trading journal.
I have tried listing out the most common myths floating around the stock market. These are so generalised that many people started believing without research. So have patience and grow your assets step by step instead of considering the mythologies as truth. You should always search for accurate information to help you be a better trader and keep applying the indicators, analysing the chart pattern etc., for better results.