There are a few common stock trading myths that investors believe. Some of these myths are that common stock is a risk-free investment, that the market is always correct, and that individual stock prices can be accurately predicted.
Common stock is not a risk-free investment. In fact, common stock is a riskier investment than other types of securities, such as bonds. The risk of investing in common stock comes from the possibility of a loss of money.
The market is not always correct. The market may be correct in general, meaning that the prices of stocks will reflect the underlying value of the companies. However, the market may be incorrect in particular cases, meaning that the prices of stocks will be too high or too low.
Individual stock prices can be accurately predicted. This is not always the case, as stock prices are influenced by a number of factors, including the overall market conditions and the company’s financial condition.
11 Top Stock Trading Myths
Trading Makes People Rich Quickly
The first and the most common myth in people’s minds is that trading would make them fast money. However, the reality is to be a long-term player in the stock market; you would need to go slow but steady. Also, as Buffet said, trading is not about making money; instead, it is about dodging losses.
Most users see the glitz and glamour of successful traders and enter with the wrong mindset. But, as soon as they lose their money, they get the perfect reality check. Remember, the people who are making thousands of dollars are doing it for decades.
You Must Pick the Highs and Lows to Make Money
Another misconception people have in their mindset is that they need to enter the market at the lowest point and exit at the highest. However, it is the worst mistake one can make. We mean if you were anytime successful in doing it, then you might have got lucky. Generally, it is rationally not possible to enter at the exact highs and lows. Instead, a successful trader is one who rides the market and not the points.
Trying to get in the market like this can cost you too much. A smart trader would use tools, indicators, and signals and focus on taking out his maximum profit only.
Trading is Gambling
We have uttered this saying many times that online stock trading is not equal to gambling. Many people do not get into trading because of this myth in their heads. But here’s the thing, stock trading is a rational choice based on many factors, and based on those factors, we predict that the price would go up or down.
Similarly, for long-term investments, every investor does some fundamental analysis of a company, its prospects, and the current health, along with technical evaluation also. And then, he spends his money.
In place, gambling is spending your money on a random basis to earn gains, without any logical or rational factor.
Trading Market is for Elite People
Believe it or not, some people also think that the stock market is not for everyone. Instead, it is a place only for wealthy persons. They believe that the trading market requires a minimum investment to start your account, but that is wrong. One can start as low as he wants.
If one would start trading with a significant amount, then he will lose big money too. It is better to start small, even if you have more money. The reason is you must first know what you are doing and then should increase your investments.
Buying Losers is Good
The ideology in these kinds of people is they’ll buy a stock trading at a lower price and earn money as it goes back. In this mishap, they purchase the losers. But buying losing stocks without any research and analysis might cost you extra bucks.
There’s a saying in the stock market trading world that people buy and sell too early. If the stock is continuously falling, then why are you buying it? At least, let it show some positive signs first.
For instance, recently, due to COVID-19, many company shares were at their 52-week low point, which usually is an excellent investment. But, most companies broke the record and went further downwards; thus, investors lost further money.
Stop Losses are Bad
Not using a stop loss tool is terrible because of several reasons. The stop loss is the point where you set your stocks to be sold automatically without your permission. With the help of stopping losses, you don’t have to worry about falling prices nor need to look repeatedly at the prices.
It’ll also protect you from sudden falls. But, remember to place the stop loss at the right point because if you set it too adjacent to the current price, then the chart line might touch it and sell your stocks, even if the line goes up later.
Don’t Trade with Leverage
Another myth is that we should not use leverage tools because it increases the risk and thus, the losses. But, the reality is it is a tool and not bad or good. Those who know how to trade with it earn two or three times the profit. While they don’t spread myths like this.
Thus, it is better to trade with a low amount or in a virtual account first. And, then if you know how to earn steady money, use leverage then.
Use as Many Tools as You Can
It is the most illogical myth we are debunking today. How can we use all the tools in a price chart and be better at it? Just like too many ingredients in a dish, makes it fall; similarly, using too many tools and indicators shall confuse you.
One must use either 1, or maximum 2, tools only to get the idea of the market trend.
You can Earn by Investing less Money
No, it is not a contrary point to myth number 4; instead, it is another eye-opener. Anyone can indeed start stock trading with myths as low money as one has. But, if we are real, low-volume trading is suitable for learning only and not for earning. If you want to make some noticeable profits, then you must invest first.
We mean you cannot just make $100 daily with an investment of $500 or as people say – Money attracts money!
You Need to Be a Genius to Trade
If you think that all the successful traders are some Harvard or Cambridge grads, then you might be living in a different world. Stock trading is not rocket science with differentiation or integration; instead, it is only basic mathematics. One doesn’t even require a school certificate to be a successful trader.
What you need is reasonable control over your emotional and psychological mind, with some necessary analytical skills. These can be learned anywhere between three to six months.
It is Better to Know Some Part than Knowing Nothing
It is a common mistake young people make in every field. They think it would be better if they get partial knowledge of something rather than being unaware of it. However, it could be more dangerous. If you know nothing, you will not make any move, but if you know you are incomplete, then you will invest, thinking you know it.
In stock market trading, it is best to either have a bright, complete understanding of something otherwise don’t even think about it. It applies to everything, charts, tools, signals indicators, etc.
These myths were the most common among traders, but there are a lot of others in the market. You need to be aware of them. And, remember, myths and rumors are spread by the people who themselves could not make it. It is a better way of them saying – I could not do it, you also would not be
Be aware of them!
Some ways to tackle them are – take the advice of legit, successful stock advisers only, who want to see you grow. Read authentic material, i.e. from the books, and if from the internet, make sure it is genuine.