Knowing the difference between popular trading misconceptions and reality is critical to long-term success. In this post, we look at the top ten trading urban legends to be aware of. These myths are highly connected with trading psychology, which goes hand in hand with a successful trading career.
1. Traders are made, not born.
Certain personality traits make it simpler to trade, but no single trait creates a trader. What makes a trader successful is proportional to the effort he puts into his craft, and it is through experience, patience, and enthusiasm that people become good at things.
2. You must have a high IQ to trade.
This is certainly a myth. In specific ways, having an above-average intellect may even be a disadvantage. Trading is a human performance activity that does not demand exceptional intellectual abilities, and an overly high IQ may translate to an overconfident attitude that could cost you when making trades.
3. Traders who make money often have the ‘correct trading personality’.
Again, the right trading personality does not exist. According to research, there is no correlation between personality type and trading success. However, it’s critical to understand your qualities and how they may assist or impede your trading, and work with the qualities you have got.
4. Trading is simple.
It’s difficult to argue against the notion that trading is easy, as there are many factors that one has to take into account in order to make a successful trade. Trading is a complex job that requires different talents and aptitudes from those required in most other jobs and careers. Traders must understand their personal strengths and limitations and develop distinct abilities to deal with mental and emotional challenges. The later skills are among the most difficult to develop and underappreciated.
5. You must be brave, aggressive, and fearless to succeed.
In reality, that’s more hype than substance, and it promotes a strong ego, which is harmful in trading. The most successful traders keep their confidence under control by quietly doing their homework, studying the charts, and hanging on until the right opportunity arises. They try not to get too caught up in their accomplishments, and they are definitely not fearless – they make calculated moves, and they tend not to wager bets that are out of their league.
6. It’s critical that you trade without emotions.
This is a myth, because while it is the ideal state for trading, it is simply impossible for a human being. When you recognize your emotions, you’ll see they’re assets rather than liabilities. The actual key to trading is to be aware of your own feelings and to seek to be in tune with them. Feelings will always be here as we are human, and understanding yourself better can make you a better trader by preventing you from making impulsive decisions.
7. Traders at the top of the food chain are generally correct about the market.
When it comes to this myth, it is half true. Many, if not most, big and successful trades are made by top traders. However, they also make suffer losses from time to time. Ultimately, top traders succeed because they have developed a psychological edge that allows them to be unaffected by small losses. Most of their trading is done in modest profits with minor losses. When things are ideal, they increase the size of their positions and allow the profitable ones to run.
8. Paper trading is meaningless; it’s not a real trade without money.
This is a common myth that must be busted: the idea that if you’re not paper trading, you’re wasting your time. In reality, why limit yourself by the amount of capital you have? Paper trading helps you retain your knowledge and experience through repetition, and it allows you to hone your skills in time without risking your capital – these are definitely not meaningless.
9. You can’t be a successful trader if you don’t understand the technical aspects.
Understanding technical analysis is, undoubtedly, where many traders spend the bulk of their time, but it’s only half of the picture. You must also learn essential performance skills. Traders should devote as much, if not more, time to developing their psychological edge as they do to acquiring technical trading knowledge. A good, balanced skill set is ideal for traders.
10. Trading may be stressful.
This is true to an extent. While trading can undoubtedly be stressful – and it is for many – it doesn’t have to be that way. Successful traders have a certain mentality. They aren’t concerned with any specific trade in particular. Their attention is on the long run. They understand that the profits will take care of themselves if they focus on things within their control (such as trade selection, entry, risk control, and trade management).