Trading Myths You Need to Know About
Hello everyone, today I would like to talk about Myths in trading which have been around for all those years.
Trading is Gambling
If you don't approach trading systematically, then you can't quit your losing habits and you cannot make the most of your profitable ones. Your risks when trading must be precisely defined, but most traders don't even size their positions. They operate on a gut feel or go all-in when things get really desperate. Instead of entering into a trade that was planned because of your rules, you enter these trades based on your emotions, fear, greed, and these are what get you in trouble and turn trading from a systematic task to something no different than gambling in Las Vegas.
High Leverage = larger profits.
Higher leverage means larger profits. Leverage is a double-edged sword. This is something you have to be very careful with. I'm not going to sit here
and say not to use leverage, but leverage does not mean larger profits. There is a time for it. There is a place for it, and I highly recommend that you don't mess around with leverage until you understand when that exactly is. When traders lack of strategy in leverage that made them very profitable, will then take back all their profits and more. Again, at the heart of this problem isn't the leverage itself, but it's lacking that systematic approach to the market.
What Goes Down Must Come Up
Another myth, what goes down will eventually rise. William O'Neil, the founder of IBD, is famous for teaching the ordinary person how to consistently profit in the market from leading growth stocks. He showed that low price stocks are often low for a reason, and high price stocks are usually high for a reason. If a stock is trading at 52-week lows, there is probably a reason why nobody wants it, and it is going to continue to make fresh lows. If a stock at 52 week high, there is probably a reason why it is at highs. The institutions want it and it is going to continue to make highs. And this was something brought out by William O'Neil. The best names in the market tend to make highs, and then new highs because they have strong earnings, strong sales, and very high-profit margins. This is where the approach, buy high, sell higher comes in. When you are new to trading, you usually hear buy low, sell high. The stocks making lows are not the ones that we are interested in. We are interested in the stocks making highs, so we are going to buy high and we are going to sell higher.
More Indicators = Better Trading
More indicators = better trading is another myth that you could hear. There is thousands of indicators for almost every type of price movement, market dynamic, timeframe, whatever your trading style is, there is an indicator for it, but having more doesn't improve your trading. It actually reduces the wrong liability of the signals. You need to focus on very few indicators. The best ones are defined by your strategy that help you, and you use them consistently. Bringing any more indicators for extra validation, you are not going to get all indicators aligning up all the time, and if something doesn't have to do specifically with your strategy and your plan, all it is going to do is give you analysis paralysis, because you don't jump onto something that you should have, or give you a false signal to make you sell prematurely.
Hope you found today’s article helpful.
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