Misconceptions about trading
-
- 0
- 576
- 0
Individuals often have a distorted picture of the trading world. These misconceptions are often excuses for not trading. Here is a list of the main excuses.
When I talk about trading, a lot of people conclude that I have to be good at maths. Some individuals have this image of a geeky trader with big glasses. This does not reflect reality.
This misconception comes from the fact that, to work in a trading room, it is essential to have been to engineering college or to have a master's degree from a business school where mathematics is omnipresent. This is the norm in France.
However, in trading, there is absolutely no point in being good at maths. Only bank employees who work to develop high-frequency trading algorithms are strong at maths. It is essential in their profession.
For the average person and all individuals, being good at maths is not a factor for success in trading. The only calculations are how much a losing trade can cost and how much you earn from a winning trade. But there are many money management tools that are free, which do the calculations for you.
This is an excuse often cited by those who do not want to trade. Trading involves risks and can lead to the loss of all your capital, that's a fact. Only, the risk is manageable. This is called money management (risk management rules).
Those who tell you that trading is too risky, and that they have lost everything on 1 or 2 trades, are simply people who have not managed their risk. By following money management rules, you cannot raze your trading account unless you lose on all your trades.
According to a study conducted on all the clients of a large Forex broker, 1 trade out of 2 is a winner. However, 9/10 of traders lose on Forex. The loss is therefore not related to a bad strategy but to poor risk management. If you lose, don't say that trading is too risky, you can only blame yourself (lack of learning or poor management of emotions!).
This is the oldest excuse in the world for lazy people or those who simply do not want to say that they are not interested in trading. Trading is not complicated. All elements of technical analysis are simple to understand. Anyone can use them in their trading.
On the other hand, it must be accepted that trading training takes a long time. It is not learning chart patterns or key technical indicators that takes time, it is learning to know yourself (to control your emotions, to know what type of trading suits you, etc.), to manage your risk well and to accept losing. Learning to trade is therefore closely linked to psychology. The trader's worst enemy is himself, not the market.
In the trading world, there are a lot of crooks, that's a fact, but you shouldn't lump them together. Not all "professionals in the sector" are crooks, they do not all run off with the clients' money.
To avoid being ripped off by your broker, there is only one solution, choose a broker that is both authorised and regulated in your country. To verify this information, the only way is to go to the Regulatory website.
There are also many scammers in the field of paid trading training courses. You do not have to pay for general training. There are enough free trading forums and fact sheets to make a good start in the financial markets. Generalist training is often there to take you away from the trivialities or to sell you a dream. On the other hand, specific training (on an indicator for example) can be of very good quality.
People often have the image of the trader who does not switch off his screens, who only lives for trading. A well-known saying sums up this vision well: "No life, no wife, just trading".
What takes time is training in trading. This requires a lot of work, patience and will. On the other hand, once you have found your trading strategy, you could just spend a few hours or even a few minutes a day trading. Indeed, trading can be applied to different time units. The longer the time unit, the less time you need to spend in front of your screens. If you trade on a one day basis, for example, you only need to monitor your trades once a day, that's more than enough. It is therefore quite possible to combine a full-time job with a trading activity.
The problem is that all traders want to do short-term trading. That is the image of a successful trader. For some people, the more time you spend in front of your screens, the more money you can earn. That is totally not true. A trading activity adapts to all profiles, all schedules, etc. All you have to do is find the most appropriate strategy.
Starting from €1,000, trading can be done in suitable conditions. Between €500€ and €1,000, it is also possible but it requires adapted risk management. (See money management for small Forex accounts).
Trading is therefore not only for the rich! On the other hand, don't expect to become rich through trading. The income you can expect from your trading activity should always be linked to your starting capital in trading. You must think in percentage terms. If you make 10% a year, that's very good.
The starting capital in trading depends on your savings. You should never invest all your savings in trading! I estimate that 10% is more than enough to start with. If you reach this amount, stop trading before you go and tap into your monetary reserves needed for your future life. You can only invest more if you have a winning strategy, tested over at least several months on a real account.
If you invest too much of your savings, the financial pressure will be all the greater and it will be much harder for you to succeed in the financial markets.
No matter what your capital and means, a rich person will not succeed any more than anyone else in trading just because he or she has committed a higher amount. As a percentage of assets, the risk and potential returns are the same for everyone.
1 - To be a good trader, you have to be good at mathematics
When I talk about trading, a lot of people conclude that I have to be good at maths. Some individuals have this image of a geeky trader with big glasses. This does not reflect reality.
This misconception comes from the fact that, to work in a trading room, it is essential to have been to engineering college or to have a master's degree from a business school where mathematics is omnipresent. This is the norm in France.
However, in trading, there is absolutely no point in being good at maths. Only bank employees who work to develop high-frequency trading algorithms are strong at maths. It is essential in their profession.
For the average person and all individuals, being good at maths is not a factor for success in trading. The only calculations are how much a losing trade can cost and how much you earn from a winning trade. But there are many money management tools that are free, which do the calculations for you.
2 - Trading is too risky
This is an excuse often cited by those who do not want to trade. Trading involves risks and can lead to the loss of all your capital, that's a fact. Only, the risk is manageable. This is called money management (risk management rules).
Those who tell you that trading is too risky, and that they have lost everything on 1 or 2 trades, are simply people who have not managed their risk. By following money management rules, you cannot raze your trading account unless you lose on all your trades.
According to a study conducted on all the clients of a large Forex broker, 1 trade out of 2 is a winner. However, 9/10 of traders lose on Forex. The loss is therefore not related to a bad strategy but to poor risk management. If you lose, don't say that trading is too risky, you can only blame yourself (lack of learning or poor management of emotions!).
3 - Trading is too complicated
This is the oldest excuse in the world for lazy people or those who simply do not want to say that they are not interested in trading. Trading is not complicated. All elements of technical analysis are simple to understand. Anyone can use them in their trading.
On the other hand, it must be accepted that trading training takes a long time. It is not learning chart patterns or key technical indicators that takes time, it is learning to know yourself (to control your emotions, to know what type of trading suits you, etc.), to manage your risk well and to accept losing. Learning to trade is therefore closely linked to psychology. The trader's worst enemy is himself, not the market.
4 - There are only crooks in trading
In the trading world, there are a lot of crooks, that's a fact, but you shouldn't lump them together. Not all "professionals in the sector" are crooks, they do not all run off with the clients' money.
To avoid being ripped off by your broker, there is only one solution, choose a broker that is both authorised and regulated in your country. To verify this information, the only way is to go to the Regulatory website.
There are also many scammers in the field of paid trading training courses. You do not have to pay for general training. There are enough free trading forums and fact sheets to make a good start in the financial markets. Generalist training is often there to take you away from the trivialities or to sell you a dream. On the other hand, specific training (on an indicator for example) can be of very good quality.
5 - Trading takes too long
People often have the image of the trader who does not switch off his screens, who only lives for trading. A well-known saying sums up this vision well: "No life, no wife, just trading".
What takes time is training in trading. This requires a lot of work, patience and will. On the other hand, once you have found your trading strategy, you could just spend a few hours or even a few minutes a day trading. Indeed, trading can be applied to different time units. The longer the time unit, the less time you need to spend in front of your screens. If you trade on a one day basis, for example, you only need to monitor your trades once a day, that's more than enough. It is therefore quite possible to combine a full-time job with a trading activity.
The problem is that all traders want to do short-term trading. That is the image of a successful trader. For some people, the more time you spend in front of your screens, the more money you can earn. That is totally not true. A trading activity adapts to all profiles, all schedules, etc. All you have to do is find the most appropriate strategy.
6 - It takes a lot of capital to trade
Starting from €1,000, trading can be done in suitable conditions. Between €500€ and €1,000, it is also possible but it requires adapted risk management. (See money management for small Forex accounts).
Trading is therefore not only for the rich! On the other hand, don't expect to become rich through trading. The income you can expect from your trading activity should always be linked to your starting capital in trading. You must think in percentage terms. If you make 10% a year, that's very good.
The starting capital in trading depends on your savings. You should never invest all your savings in trading! I estimate that 10% is more than enough to start with. If you reach this amount, stop trading before you go and tap into your monetary reserves needed for your future life. You can only invest more if you have a winning strategy, tested over at least several months on a real account.
If you invest too much of your savings, the financial pressure will be all the greater and it will be much harder for you to succeed in the financial markets.
No matter what your capital and means, a rich person will not succeed any more than anyone else in trading just because he or she has committed a higher amount. As a percentage of assets, the risk and potential returns are the same for everyone.
