Ten Trading Myths Explained



Trading  Is Just Like Gambling.

This is the first thing I hear from family, friends, and new people I meet when I tell them I am a trader. What they do not understand, is that I am not the gambler, I am the casino. I trade with the odds in my favor, over and over again, with limited risk per trade. I do not plunge in with big trades with the odds against me. I am running a business, buying and selling merchandise. I am not sitting at the roulette wheel or pulling the slot machine handle.

The Markets are an Exclusive Club For Brokers and Rich People.

The markets are the most free capitalistic place on earth, even with all the government interference, high frequency trading, and “dark pools”. Anyone can open a little brokerage account, and you still get to choose your own entries, exits, and position size on any trade. Trading is one of the few professional activities open to anyone with a little money, and gladly welcomes newcomers. You can’t walk into a hospital and try out being a doctor, or play in the NBA for a few hundred dollars. However, for a few hundred bucks you can trade along side George Soros or Warren Buffett. Trading is the greatest opportunity on earth to build a small account into a big one.

Markets that have Crashed Will Go Back up, Eventually.

Just because the Japanese Nikkei index was at 40,000, does not mean it was a great value as it fell to 30,000, 20,000 and 10,000. The NASDAQ was not going to go back to 5,000 for a third time in the year 2000, or 2001, 2002, 2003, or even in 2012. It may take 22 years to see NASDAQ at 5,000 again, just like it took the Dow Jones Industrial Average until 1952 to get back to where it was in 1929.

Markets That Go up Must Come Down.

Just because Apple is at $600 does not mean is a short. It will likely be at $100 again someday but it may travel to $1,000 a share first and not hit $100 for a decade. Gold and oil may be at new high water marks for a very long time due to weakening currencies. This is why I trade price trends not opinion, no one knows what a price journey will look like short term even if they are right in the long term through fundamentals.

A Little Knowledge Is Better Than None

The trader’s account that is in the most danger is the one that thinks they know what they are doing but do not. They are generally missing a huge piece of the trading puzzle whether it is risk of ruin management, discipline, understanding different types of markets, or volatility they would be better off staying out of trading until they had the full picture of what is needed to succeed in the long term.

You can’t time the Markets.

This is almost comical with all the overwhelming proof that so many people successfully trade systems for decades beating the markets. Over the past few decades many of these people that used systems to time profitable trades and beat the markets have come from the little town of trend followingville.

Trading Requires an MBA or other College Education

For some reason people also think that you must go drop six figures on a formal education to trade, or that I want to go work for a bank or be an employee of a mutual fund. My whole love of trading is based on the independence of making my own trades in my own account and not answering to anyone. Going to college for me was the opposite of what I wanted to do,build up huge trading accounts and be an entrepreneur eventually, and be free from the whole education-job-corporate world.

Trading Requires you to Sit in Front of your Computer all Day Long

ALL of my biggest profits over the past decade have come from entering at a spot in a stock or the stock market where a trend emerged, whether it was from some swing trading, position trading, or trend following my big profits came when a trend developed over days, weeks, months and sometimes even years. For me the less time I spent in front of the computer during trading hours the more money I made. This is not to say I did not work hard to prepare for what I would trade and what trends I would pick to execute during the trading day. My best trades are simply riding a trend and letting the profits grow not watching it tick by tick.

Traders are Born not Made.

As in all areas of life I believe that traders are not born they are made. I think a person with the work ethic, passion, and drive makes themselves a trader. They do what has to be done, learn what has to be learned, do the homework, persevere and emerge as a trader; nothing stops them only a period of time stands in their way of ultimate success and wealth.