Top 3 Trading Myths Debunked

by Trading 101     Jul 16, 2019

Trading, especially stock market trading, is one of the most intimidating topics to the average joe who didn’t study finance in college. Most people didn’t exactly receive a Trading 101 guide in high school where the do’s and don’ts of the topic are covered and as a result many myths exist in the realm of trading, for both the general public and new aspiring traders as well. These myths can be harmful especially to new traders or people who could benefit from being in the finance industry but are too intimidated by the misinformation being floated around by the uninformed.

Let’s look into the top 8 myths that need to be dispelled for many people who need some brushing up on their Trading 101 knowledge or for those that know nothing concrete about trading at all.

You have to be able to predict the future to earn profits.

This is one of the most common myths floating around, perpetuated by movies that feature stock brokers heavily abuse insider trading opportunities. This myth is, in fact, not even possible. The markets and economy are simply not predictable as there are millions of variables at play in any given trade. Statistically speaking, every trade made in any market has a random outcome. It’s an expectation that every trader is supposed to have from the beginning - that no matter how the market might look today, there’s simply no guarantee for anything.

Of course, that is not to say that there’s no money to be made. There are plenty of strategies out there to minimize potential risk and make use of historical data to increase the likelihood of a trade being profitable. With a bit of research, anyone can learn these and apply them as there are plenty of resources available.

A background in finance is required to be a successful trader.

This one is fairly debatable, but the truth is that there is no prerequisite to be a good trader. The Trading 101 principles are the same regardless of what school you came from or what education one may have. Plenty of successful traders came from completely unrelated fields and simply made up for their lack of formal education by studying what they needed to know on their own. One may actually argue that coming from a too-technical background can be hazardous to trading success as that may lead to being overly analytical.

Trading is about making money quickly.

Another stereotype perpetuated by pop culture is the “get rich quick” scheme. Trying to get rich quickly on the stock market is like playing the lottery - sure, every now and then someone gets extremely lucky and can profit in the millions from a stock that blew up in value over a short period of time, but the likelihood of being that someone is about as high as winning the lottery. Warren Buffet, one of the most iconic and successful traders of all time, said that trading is all about not losing money. The idea is rather simple: as long as you aren’t losing money you can gain money. For this to be true however, you must be patient. When people see the value of a stock they’re holding drop, they tend to panic and sell off their stock in an effort to minimize losses. However, unless a company is receiving catastrophic levels of damage, data shows that most recover within a few years and can still turn out profitable.

There are many other myths out there which make the finance industry seem unapproachable and intimidating. The truth is that finance is like any other industry - you can learn everything you need to know on your own using the internet and freely available resources if you want to know more.

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