A lot of books have been written about stock trading, many of them contain valuable advice. However, many myths remain in this area, which are experienced by both novice and experienced traders.
You can earn quickly and easily
Without exception, everyone who comes to the stock exchange for money, believes that he is the lucky one who will immediately fall into 2% of those who make money in the market. Such people do not consider it necessary to apply additional efforts to learn and master trading skills, and this is precisely what gives a chance to “survive” in the trading world. It is highly desirable to do it all the time, rather than be content with unsystematic knowledge and random earnings, which were obtained with their help.
A trading plan is not required at all
Another trap is the lack of desire to independently monitor the market and draw conclusions in order to build their own trading system based on them. Instead, many simply start to trade, without going into details of why the price is rising or falling.
It takes at least seven years to plunge into trading and get at least an initial understanding of the device of exchange trading. And this is only if the trader purposefully follows his trading plan, constantly takes notes and screenshots of transactions, and also controls his psycho-emotional state.
There are always growing assets
Another interesting myth is that there are tools that always grow. Alas, this is no longer the case. In order to eliminate traders ’collusion and to control the incoming liquidity, 10–12 back markets changed dramatically and turned from“ live ”into market-maker markets. This caused the need to work “in two directions” (for purchase and for sale), and on the market itself there were long-term corrections, which were not there before. Even the more conservative American stock market has undergone an increase in volatility and is now showing significant growth and decline daily. However, the majority of traders maintain a “stereotype of growth”. They are ready to hold falling positions for a year or six months and suffer losses, although the rules of the game on the market have changed a long time ago. In the long run, growth is shown only by the initial source of liquidity – it is not limited in time to the presence on the exchange and is always ready for additional emission.
Hedging is not necessary
Another myth is associated with the notion that you can work with one tool without worrying about diversifying risks. I am afraid to upset many, but diversification is obligatory. At least once a year, a “grandiose” event occurs in financial markets, which changes the value of an asset by thousands of points in five minutes, and the trader does not have time to do anything to prevent losses. You can not invest 100% of the portfolio in one trading instrument. We need a straw, which the trader will be able to “spread” in this case, having protected himself from total loss of capital. It is important to understand that this is an essential element of the trader’s work.
The main thing – monthly payments
Each professional and novice trader wants to get 30−60−120% profit monthly. At the same time, few people understand that any plus is done “through a minus”. For example, if a trader has a clear setting to earn more than 100% per month, the drawdown can reach 60–70%. At the same time, he will probably need to inflate the volume of transactions and trade without a stop. Is everyone cool enough to work in this mode? The trader must adequately assess their potential and operate not with monthly but annual indicators of profitability. When transferring months to a year, he will immediately find out that 4-6% of profits per month will give at least 48% per annum in foreign currency, and the permissible risk will not exceed 2-3% of the portfolio volume. It is important to be in the black in the long run – six months, a year or more. This can be achieved only by a competent and adequate approach to trade and risk control.
It won’t hurt
Without risk in the financial markets it is impossible to work. This is one of the most high-risk areas of activity. It requires awareness and a trading system with a clear mathematical model, their lengthy lapping and running. To develop them in one month will not work. In addition, although few people pay attention to this, constant work on oneself is important for the trader. You need to constantly train and “through pain” to gain invaluable experience.