Misconceptions about Trading

For lack of a better word..- let's just highlight a few things to think about

Understand the Marketing Hype

Just today I saw a new advert on Facebook, this one offers unlimited free demo trading. Another app claims you can make $5,000 from investing only $200. Lately it seems there are more and more of these, and they are getting bolder and bolder. Open an account and receive free cash, we hold your hand through your first trades, let your money work for you, profit while you sleep. Money-making seminars, the latest and greatest trading systems..

Did you get the part on trading being a zero sum game? Who was making the money and who was losing? The small, part time trader with his small account, trying to build his wealth while working his day-time job, with no money available for training or educating himself (it is not necessary, it is so easy to make money), or who spent a fortune on the latest and greatest trading system (just follow these simple steps) - where does he fit in - on the winning or the losing side?

The marketing hype is there because the big institutional trader needs more and more people to enter the market, to allow him to continue making millions. With people loosing their life savings and exiting the markets, he needs a constant flow of new players to enter the playing field, pumped with mis-information about how easy it is to make money. The market needs you and your money. They will do anything to lure you into the water, they will make it as easy as they possibly can and paint you the most rosy picture - riches within easy grasp.

It is not as easy as they make it sound! Many had come before you and lost, and many more will follow in their footsteps. If you do not want to become part of the statistics, train yourself, invest in the knowledge on the truth about the market. Tread carefully!

Account Size

They want to make you believe you can make it with a small account (invest as little as R300!). This writer personally do not know of one trader, self included, who could make a success out the trading business with a small account (small being anything less than about $5,000, and even that is too small). The small account story is just enough to give you a bit of a taste for the markets, it lasts for a while, then you loose it all.. Then you realize your mistake - you need a bigger account! And then they have you exactly where they wanted you, because you have never learned to trade, you have never acquired the skill to read the market, to adapt to market conditions, to manage your trade, to manage your losses! Then you loose the big account and then you become a statistic - one of those who made the institutional trader richer - and you exit the markets for good - but no problem, there are plenty other fish in the sea.

Maybe it is possible with a small account - maybe there are some who can make it work - but in this writer's experience it is not. You need a fair account size to start with - probably $5,000 or more, in theory $3,000 should work, if you follow some of the principles that we promote and you are very patient with your trade selections. BUT, as before - you need to invest in the knowledge on how the markets work and how to adapt with the matkets. Spent some of your "to be" fund on education, then go and do it, or risk becoming another one of the statistics.

I have a Trading System

This is another one of those very carefully concealed traps. You have a trading system, that you probably paid R20,000 or more for, which uses a combination of signals, moving averages and momentum indicators and wave theory and .. whatever else - and it tells you exactly where (or when) you need to enter the market and where to place your stops and when to take profit! You don't even need to think, it does it all for you! And they have shown you the statistics from the past on how well this system has performed and you have tried it and it really works for you!

The problem is Trading Systems does not work!! Well, they do.. - for a while, but then they stop working. Because markets changes! The same market, which behaved itself for a couple of months, will change its character, suddenly become highly volatile, or simply flatten out and stay flat for months and the "method" stops working! And suddenly the same signals that previously worked so well will see you taking loss after loss! And because you paid so much for your trading system, you never had funds left to invest in the necessary knowledge on how the markets work, on how to adapt with the changes in the market - you have never learned how to trade!

There is a second problem! Do you remember this fact - trading is a zero sum game? What does the institutional trader need to beat you in the market? He needs to know where you will be placing your orders and where you will be placing your stops! If he knows this, he can let the market do what it needs to do to get you into the market - then let the market collapse until it hits your stops - you are out and he has taken your money. That is all he wants! So, if thousands upon thousands of investors all follow the same trading method, which tells them where to enter and where to exit..- well what more can the big guys ask for!?

The Market is too big for any one player to manipulate it

That's just bull! Yes, there trades more than 1.5 trillion US Dollar on certain markets in a day. But do you think the money just shifts from one corporate to the next corporate to the next in a never ending cycle? One big guy competes with another and makes money today to give it back tomorrow? No, think again, all the corporates wins and the millions of small guys loose.

The "big institutional trader" above is not a single guy, it is all the big guys taken together. And they do have the financial resources to move the market. Not always, but sometimes the market lends itself thereto to be manipulated. Some times (actually quite often) the market is able to engineer a move to a certain price level just to pick up the stop-orders it knows is bunched together at that price level, and then the market lets go, move in the opposite direction. All the market needs to do this, is to know where those stop orders are bunched together! (The demo trade we use as an introduction to our trading strategy is such a case in the CAD/USD currency pair - you will recognise the false breakout and subsequent retracement before the actual move occurs (after first hitting your stop-loss))

The professional trader dedicates his entire life to trading. They study each trading method employed by each group of people in detail - that is their game, that is how they make their money, they invest in the knowledge of how every system works, the Fibonachi traders, the wave traders, every trading system that has enough people invested in it. And once they know how the system works, they know where the orders will be lying in the market and what needs to happen to the price to trigger those orders - and... they have their mission cut out for the day

You have to learn to adapt with the market - you have to invest in the knowledge on how to trade, you cannot rely on a system to do that for you! It is the only way to survive in these shark invested waters!

Things to be aware of

Knowledge is key

There are a lot of "trading marketing" happening, a lot of hype - it seems everyone just want you to jump in and trade.. It amazes how few are telling you the whole story. Let's explore this a little..

Trading is a zero sum game

Swimming in dangerous waters - some trading misconceptions

Entering a trade, what is your probability of success