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Ever since I’ve started trading many years ago, I’ve been advised many times by friends and relatives to stay alert or stay away from the stock markets. I’ve always been a cautious trader, due to which I feel to have lost a few great opportunities. Over the course of many years of learning through trial and error, I realised that trading should be taken as seriously as any other profession. I always advise my friends to take some calculated risks in trading, at the same time make informed decisions for long term investments. Here I will go through some of the trading myths in order to prove that trading is after all worth all the effort and money invested.
1. Trading is Gambling:
Sure it is if you are not prepared, just like running a business is gambling, driving a car is gambling or even trying to catch a ball thrown straight at your face is gambling. What is common in all these acts is that they all require practice & dedication, and you are bound to get hurt if you don’t follow a set of rules. Trading is no different and what I’ve learnt from my years of trading experience is that you can literally turn the casino tables if you trade with devotion, not emotion. Trading definetly involves taking risks which is why you are rewarded, however these risks can be minimised through diversification, following stop loss rules, and trading based off your own research instead of market tips or news.
2. Higher leverage means larger profits:
If this was the case, why would stock brokers impose rules such as auto-square off or interest on margin shortage? Higher leverage sure means higher profits if the market turns in your favour, however it also means higher losses if the reverse happens. Leverage is a double edged sword which is designed to hurt the customer without his knowledge. At TradingBells, we advise our client to not utilise the full leverage we extend, instead invest your time and money in picking the best companies which are fundamentally strong and where they will be happy to stay invested for a long period of time.
3 .What goes down will eventually rise:
As Keynes has rightly said ‘Markets can remain irrational longer than you can remain solvent’. Never trade assuming the markets will rebound after a crash as you may find yourself waiting till eternity and eventually might have to exit at unfavourable levels. Markets may rebound after a crash, but this can take months or even years as was evident in case of DJIA which took 22 years to revert to the pre-1929 crash levels. Hence I always ride the trend when trading in the short term, and invest in fundamentally strong companies for the long term.
4. It’s not easy to trade online by yourself:
Many traders need a second assurance before placing their trade, which is why they prefer to call their dealer or even visit their broker in person for trading. It’s a fact that brokers earn revenue by churning your portfolio, and hence may not always ask you to hold the position for a longer term. Trust in your own research and you can save your time and money by trading yourself online. The number of online traders is growing in India, but we are still a long way behind some of the developed economies. With the government supporting Digital India, internet penetration and speeds are bound to rise, thereby promoting the evolving breed of online traders.
5 .More indicators are better:
It is important to look at one or two indicators when day trading, as it not only gives you the trend of the market, but also helps you in making informed decisions. However just like too many cooks spoil the broth, too many indicators may end up confusing the trader instead of showing him the right direction. Set your eyes on a couple of them and follow them consistently to yield the best results.