In this article, I’ll share with you five trading myths that almost all new traders fall into. So, let’s start it straight forward.
Myth number One, IT'S NOT POSSIBLE TO MAKE MONEY in Trading
This is the language of failed people who cannot make any progress in trading career because of some reason. It may be their emotions, lack of discipline, lack of knowledge or trading strategy. It may be the language of those people who never traded in the life. Because this is not true. You can not only make money in trading but also can make it consistently. You cannot make your livings on that income but also can achieve your financial goals and financial freedom as well. Trading is a true business and not a scam. Those who failed in the market tell these stories just to justify themselves and for self-satisfaction. Because it is in human nature that whenever he fails, he searched justifications form outer environment and whenever someone is successful, he gives credit to himself. So, people don’t want to look failure in front of other because they don’t want to look stupid and that’s why they claim such things. Through this way they feel good in front of other even if it is not true. So, don’t let the negative people affect your decisions in the trading market and don’t let the failure of someone else justify your failure. You put your hard work there and you can get all the success in the market. Trading is not a get rich quick scheme, it is just like other business. You have to be patient to be profitable and think on the longer term to be on the line of success. Acquire necessary skills and then compound your profits in the rest of your life. Keep one thing in mind, that you and only you are responsible for your success and failure in trading and in life too.
Myth number Two, THE BEST STRATEGY
The best trading strategy is the one that generate the greatest number of profits. Well, that’s not true again. You can’t judge a trading strategy based on the amount of profit that you make because the amount of profit that you make is determined by a couple of things. Number one is the size of your trading account and number two the amount of risk that you’re taking. For example, you won’t expect that thousand dollars account to make the profit equal to an account worth ten thousand dollars within a day or week. So, don’t judge a trading strategy based on the how much profit that person has made. On the other hand some people might judge a trading strategy based on the percentage returns. Let’s see, there are two trading account with equal amount of capital. By applying the same trading strategy, one account has made 15% of profit and the other account has made 10% of profit. Why is that so, because they applied different risk management strategies. The trader who earned 15% may have higher risk potential than that of trader who earned 10% profit. Again, percentage is also not a suitable criterion to judge the trading strategy. In short, there is no best trading strategy available in the market and you cannot define as well that one strategy is better than the other. At the end, you have to find a strategy that you are comfortable with, that best suited your personality and you can trade with it consistently, and that can win more trades for you over a period of time in all circumstance.
Myth number Three, Support and Resistance gets stronger on every test
If you read a lot of text books or you read a lot of forums, you must have learned that if the price is testing the support or resistance the number of times, it gets strong which is not true in the real market. Based on our trading experience, if support or resistance is being tested number of times within a short amount of time, then it gets thinner and thinner. To see it logically, look, why a support is hold because it has huge buying pressure or buying orders at that level. It may be because of some large financial institution who is going to buy at that level or some retail traders who can see that support level clearly. But as these orders get fulfilled with the passage of time, the buying pressure becomes thinner and when there are no buying orders to support that support area then it breaks and market move down quickly. It moves quickly because after breaking the level, it also hit a lot of stop loss orders as well which are in case of support, sell order and they increase the selling pressure in the market. The same applies for resistance as well but in reverse order. You can understand it with the help of an example. You hit a closed door again and again. As you hit it, it becomes weaker and weaker with every hit and ultimately it breaks. The same applies to support and resistance levels as well. If the price hit them again and again, they become weaker and ultimately breaks.
Myth number Four, MAKE 20 PIPS EVERYDAY
You probably hear something like this, if you just trade one stand a lot and you make 20 pips a day, you can make a full-time income from trading. That’s about four thousand dollars a month. For that you just need to make 20 pips a day. For example, a currency pair Euro-Dollar it moves a hundred pips and you are only supposed to take 20 pips out of it and that will make a four grand of a month. Now, what’s the problem with the MAKE 20 PIPS EVERYDAY statement is that idea being presented to you. Yes, on average most currency pairs move more than 20 pips a day depending on the volatility of the market and it might seem plausible. If a market moves like you know 100 pips a day, and you can make 20 pips on a one stands a lot, there’s about $200 a day multiplied by five trading days in a weak which makes $1000 a weak and $4000 a month. But the reality is altogether different. This statement is assuming the market doesn’t change, assuming that your trading strategy will continue working. But here’s the thing, when you look at a chart and the chat is not always in an uptrend, downtrend or in consolidation. So, market is always changing and is not possible to make money on every single day. To make money every day, you have to assume that the market is not changing and is working in the same direction and your strategy is working well in that scenario. But in reality, this is not true. The only thing that is constant in the market is the change. The market is always in the changing position and you have to suffer a lot of losing days as well. There is also no any trading strategy in this world that can make you money on every single day and in all kind of situations. Every strategy has few winning days and few losing days. All you have to do is to be positive in the long run. In the market, you have to adapt to different market conditions and it depends on you how quickly you can adopt such market conditions. The sooner is better.
Myth number Five, THE MARKET TRENDS 30% OF THE TIME
This is a very common one and you must have heard that the market is trending 30% of the time. It’s in a range more than half the time. But we can apply the same principle on all the markets and within market on all the stocks or currency pair. Few markets have the tendency to trend better while few markets have mean reverting behavior. Similarly, few stocks in the stock market and few currency pair in the forex market trend better while few show mean reverting behavior means they tend to follow rang market behavior. You can easily see this through back test. If the stock or currency pair continue to rise in case of upward breakout then the equity curve should be in the upward direction. Similarly, if the stock or currency pair has the tendency to go lower whenever it breaks out its lower range than it has the trending behavior. Before investing in any of the trading market, you have to make sure that the behavior of the particular market or sock, or currency pair is trend or range bound so that you can proper trading strategies on that.