There are numerous misconceptions and incorrect assumptions surrounding trade. These myths are held by both aspiring traders as well as the public. Not only are they fake, they are hurtful to both you as a trader and your chances of success, but also to the reputation of trading in the minds of the public who know almost nothing about it.
In this article, we will dispel 11 of the most common trade myths and explain to you why they are not true…
Hopefully, after finishing today’s lesson, you will have a better understanding of the reality of trading, what to expect and how to profit from it. Each commercial myth will be followed by truth and an explanation of both:
Myth: trading is all about making money man fast!
True: trade is about not losing money, you must learn to do that if you want to do any…
Perhaps the biggest myth about trading in the minds of the general public, is that it is about making money fast. High risk, Fast Money, Fast Cars, etc.on and on. The stereotypes surrounding the trade are so widespread that most novice traders enter the trade because of these stereotypes and so they start with the complete wrong mindset and expectations. These expectations come to a realization crashing once they lose some trades and reality is set in. As the great Warren Buffet so famous said:
Rule # 1: Never lose money. Rule number 2: never forget Rule Number 1. Open system.
That’s right, trading is about not losing money much more than it is about doing it. The reason is, if you want to make money in the markets, you have to be a risk manager more than anything, a capital preservationist, if you will. If you want to take advantage of the big moves in the market, you must learn to preserve your trading capital by making a time offer and being patient in the face of constant temptation.
You will be in battle not only against all the other traders who trade the markets you watch, but also against yourself, who is perhaps the most difficult ‘opponent’ to defeat. Once you get to the point where you can preserve your trading capital and only use it on trading opportunities that meet your strict and predefined criteria set out in your trading plan, then you will have conquered yourself and will start taking money from other market participants instead of giving it to them.
Myth: you have to be an Ivy-League, Wall Street hotshot to be like a trader
True: you don’t need to be super smart, trading is as skillful as math…
Guess what? You don’t need to be a college graduate to be a Successful Trader. Trading isn’t just for some super genius math genius who sits there coding algorithms all day. In fact, just as being too emotional can be bad for trading it can also be too analytical. Those who are too analytical tend to think too much and think themselves right of perfectly good business opportunities.
Ideally, you want to have a good mix of gut feeling and analytical negotiation capabilities. Your intuition will give you many trading ideas and the desire to take them, but your analytical / forward thinking skills will be the check that keeps your trading in balance. Only when a business idea passes both your gut feeling and your logic, objective analysis should consider entering into it.
The point of the matter is that college degrees, IQ and other ‘credentials’ are nothing more than background noise for the market. Those who succeed in trading are masters of themselves. Master your own actions and behavior and ability to control them and you will succeed in trading. All books and an IQ of 180 won’t do you any good if you exceed the Eat
True: you don’t have to have a lot of money to start, a good trader can make money regardless of account size…
Often, traders believe that to be successful in trading they need a large trading account. But, this is simply not true. In fact, you can lose money on a large trading account as fast as you can on a small trading account. It is best to start with a smaller account, even if you have a lot of money to trade with. Will a large reserve of commercial capital allow you to earn more money faster? Sure. But, if you don’t know what you’re doing, you can also lose that money faster.
The strategies, skills and mental attitudes you need to succeed in trading will work on a small account the same as a large account. It’s always best to start with a small account and hone your skills, then, when you’re ready, you can deposit more money if you have it or just keep building that small account.
Don’t be in a hurry! If you build a successful trading history on a real account, even a small one, you will be a Successful Trader. Building a successful live account history over a period of a year or more is something few people can do. If you do, even on a small account, your success will begin to snowball.
Myth: you have to know what will happen next in a market to make money.
Truth: you don’t have to be right or know what will happen next to make money, you must understand that you can never know for sure what will happen…
A great myth about trading is that to make money you must know what will happen next. This could not be further from the truth and, in fact, it is not even possible. Part of the negotiation is that there is a random expectation for any trade you take. That is, any individual trade, looked into the void, so to speak, has essentially a random result. This is because there are thousands, perhaps even millions of variables that affect a market on a given day at a given time. As a result, a trade can really go in any direction, even if you believe you are 100% right.
When your trading strategy or trade advantage comes into play, it is that over time, given enough trades, if you follow your strategy with discipline, it will be played in your favor. Most trading edges or strategies are simply taking advantage of repetitive market patterns or price action patterns that are formed due to repetitive human interactions with the market. Therefore, although your trading advantage could have a 60% rate of profit, any single transaction has essentially a 50/50 probability of working. So don’t start convincing yourself, “I’m right!”about your next trade because you will start to risk too much and get too emotionally attached to that trade, which is a recipe for disaster.
Instead, realize and understand that there is something called a random distribution of wins and losses, which essentially means what I have described above. For any given trade advantage or strategy, over time and over a sufficiently large sample size of trades, that trade advantage will show a randomly distributed pattern of wins and losses. Therefore, while you need confidence in your ability to negotiate
Shorter deadlines give you more opportunities, losing money maybe! – Shorter time frames contain more crumpled, meaningless price movement and false signals that will grind you to a bloody pulp. Trust me-WAAY more lucrative and less stressful to focus on the daily charts and see a signal, enter it / set it up, then walk away for a week, instead of constantly obsessing over the low time frame charts. You will save transaction fees, Time, mental energy and earn more money by taking one or more high time frame trades per month with minimal participation to set and forget, than daily trades.
Myth: I can’t use wide stops because I don’t have much money.
True: money has nothing to do with your ability to place wide stops and wide stops are what you need most of the time…
Have you ever heard of the size of the position??! Here it is, let’s say you want to place a 150 pip stop loss because that is the best stop loss placement for the trade you want to take. But, you only have a $ 500 bill-I think the stop is too wide for you? Misconception.
All you need to do is downsize your position. If you want to risk around $ 30 per trade on that account, you would only need to adjust the size of your position to 0.20 mini lots at a 150 pip stop, that is $ 30 on any XYZUSD currency pair.
If you do not understand the size of the position, you should certainly make sure to do so before you start trading live. Again, you don’t need a lot of money to assume wider stop losses! You simply need to reduce the size of your position! I’m all about wider stops as they can keep you on good trading ideas and help you avoid stopping prematurely as many traders do.
Myth: My relative or friend or told me that trading is like gambling.
Truth: it can be, if you leave it!
Finally, perhaps the biggest trade myth is that foreign exchange trading or any kind of speculation on financial markets is the same as gambling. This is a broad generalization / stereotype that the public who does not trade and knows nothing about it, have in their minds.
The reality is that if you want to bet, you can do it in the markets. However, it can also treat trade as a high-class, high-echelon profession that takes time and persistence to be good at. Unlike gambling in a casino, you can put the odds in your favor as a trader through proper trading education, learning from those with more experience of you and screen time. When you go to the slot machine at the Bellagio, your odds are always about the same; extremely slim. An expert Price Action trader can earn a full-time living by trading the markets, easily earning 35% to 65% of their trades.