There are numerous trading myths. These myths are held both by new traders as well as by some people who know little about trading. These trading myths are not only harmful to aspiring traders but also to the entire trading community.
This is the biggest myth about trading which is commonly held by some amateur traders. Many people think trading is a get-rich-quick-scheme, and with this expectation, many new traders enter into the market and trade with the wrong mindset as a result, they fail miserably.
Trading is a long process, and it takes time to develop. You can’t become a billionaire overnight by trading. You can only make money through trading if you follow the right process and work on important factors like Risk Management, Trading Psychology, Trading Plan, etc.
If you do not follow the right process in trading, you may blow your entire capital very soon. That is why Capital Management is the most important aspect of trading. The primary goal of every trader should be the preservation of his capital rather than growing it. If you stay in the market for a long time, the market will definitely give you the chance to grow your capital.
Trading is nothing but the battle against all the traders in the market which you are looking at. You cannot win this battle without proper planning. Once you understand that capital preservation should be the primary goal of any trader, and you have to only trade the opportunities which satisfy the criteria of your trading system then only you will be able to make money from the market.
Many people think that those who are having a Commerce background can only make money through the market, which is completely false. Anyone can trade in the market and become successful if they trade with discipline irrespective of their background.
Trading is not only for commerce graduates, it’s for everyone. Even a trader who has a commerce background may fail in the market if he does not follow a trading system. On the other hand, a trader who is not having any commerce background can grow his capital steadily if he follows his trading system with discipline.
The important point is to trade in the market, you do not need any College Degree, High IQ, or Sharp Mind. Those who become successful in trading work on themselves. They learn new things every day and try to improve their trading. So, if you can work on yourself every day, and if you are always eager to learn new things, you can also become a successful trader.
Often, the amateur trader thinks that one who is having more money can only make a profit from the market. But the truth is you don’t need a lot of money to start. A good trader can generate excellent returns irrespective of account size.
Trading with large capital costs more money for your mistakes. Always remember that it is always good to lower your trading account size to an amount that is enough to be meaningful but not so big that it brings emotions and ego into the trade.
It is always good to start trading with less capital rather than starting with a huge account because, at the beginning of your trading career, you will make some mistakes and lose money. That is why it’s always good to start with less. When you become profitable for 1 or 2 months with a small amount then, you can slowly increase your account size. Another reason behind starting with a smaller account is, the skills, risk management techniques, and psychology required to become a successful trade can work a small account the same as a big account. So, it is always good to start with a small account and sharpen your skills.
Many people think that any successful trader or investor who makes consistent profits from the market knows everything about the future of the market. It’s not true. No one knows the future of the market. In fact, in trading, you do not need to predict the future of the market. You have to work on the probabilities.
There are always two outcomes for any particular trade. Either you make a profit, or you make a loss. Trading is all about winning big and losing small. As a beginner, always try to develop a system with an edge because it will pay out in your favor. You just need to master one strategy or one trading pattern to become a profitable trader. As we discussed above, any trade has two possible outcomes. So, do not be overconfident about any trade because you will start risking too much on that trade, and you will get emotionally attached to it, which leads to disaster in trading.
This myth is a little bit complicated. Let me explain this to you. Many traders often think that to become a profitable trader the number of winning trades must be greater than losing one, which looks sensible right?
But this is not generally true. The truth is you have to win big, not often. You may have heard about the Risk To Reward Ratio. It plays an important role when it comes to the profitability of a trader.
For example, let’s say you trade with a 1: 3 RR ratio. That means you risk 1 Rupee to get 3 Rupees. By this calculation, even if you win 25% of your trades, you will be at breakeven.
Now, let us consider 100 trades in which you lose 70 trades that means you lose RS.70(1: 3 RR ratio). Now, you win 30 trades with an RR ratio of 3. That means you earned 30 × 3= RS.90.
These calculations indicate that even after losing 70 trades, you can become a profitable trader. Although, I have taken theoretical values here. Real values will differ with your position sizing.
Many new traders think that trading is some sort of a trick, and by using artificial tools like robots or automated software. You can make money from the market. Trading is a complicated task, and it can’t be automated by some machine. Trading requires thinking and decision-making ability which is not there in robots or any software.
A fully automated trading system is going to fail over time because as the market cycle changes you have to slightly change your trading approach which machines can’t do. Trading conditions change every day, there are some days on which your system will work properly, and there are some days on which your system will fail. Now, it takes the decision-making ability to decide whether that particular day is favorable for your setup or not. A machine cannot decide that. It will just process the information which humans have programmed in it.
If trading were as easy as installing some software on your computer and buying or selling the stocks when the machine tells you to do so then, everyone would be a billionaire. If you look at any successful trader, they all used their mind, not robots to become successful. So, do not believe in rumors. It is always better to work on your trading system rather than searching for this kind of shortcut.
If you want to know more about Risk Management & Intraday Trading Strategies you can refer to our previous blog on
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