10 myths about day trading
Best day trading practices Nov 05, 2019
Day trading, since its inception has seen a lot of widespread myths and aspersions shot at it.
It is quite interesting that the vast majority of the people who cast these aspersions about day trading have never traded at all.
In this article, we will demystify day trading, debunk the aspersions and show you some clear-cut ways on how to go about it.
Here are some of the common myths we sampled:
Myth 1: Gambling
Many people have the false notion that day trading is a guessing game or some sheer luck kind of investment. This common notion stems from the fact that some traders have lost money.
What every day trader (especially beginners) must understand is that day trading is a serious investment and needs practice, attention, and education.
If you get these things in line then you would know how to make the right choice at the right time and reap form your investments.
Myth 2: “Get-rich-quick money” scheme
More than 90% of people who get into day trading have some form of unrealistic expectation. It is widely believed by these people that your bank account starts to overflow within a few days of trading or you just hit the jackpot with 3-4 days as soon as you start investing.
Well, that would surely be in a fool’s paradise. It is not a quick money kind of investment. It can surely pay off with patience, practice and some form of risk management.
Myth 3: You can just trade on news and make a fortune
Many beginners think day trading is very easy. This is because they have the perception that they would have to just know the news and be able to interpret it.
To an extent, this might work out, but this is a shallow way of going about day trading and a very risky path as well.
One cannot just rely on the news or financial events to make good trades. It is recommended to support it with very good indicators to make up strong trades.
Myth 4: Less skill or education is required
Many people jump onto the bandwagon of day trading because they think it is some sort of basic assumption work and you don’t need much understanding.
So, is trading for everyone?
Yes, sure! But like every form of investment that involves money, it needs some form of basic and fundamental education to be able to understand how your trading platform, indicators, and charts work.
Most platforms or brokers have educational packages for traders to sharpen their skills. It would be very prudent to follow live trades to see how it works before you launch out into the deep.
The strongest education would be your own experience. What worked for you and what did not. As a day trader, you must constantly develop your skills, restrategize and personalize what you learn from your mentors, tutorials, and books.
Myth 5: Scam
There are many negative reviews on websites and forums about day trading and trading as a whole.
The most common of them all is that day trading is a scam. This comes from the fact that many people have lost a lot of money from careless trades. This bitter experience makes them believe that day trading is a rip-off.
Many people starting out day trading just jump into it without any preparation. The fact that they don’t build a solid foundation is a recipe for disaster.
Then this kind of unprepared day traders tend to shift blames and create untrue remarks about the whole day trading process.
This is not to say, that day trading is 100% profit making where you have no possibility of losing, but this doesn’t make it a scam either.
Trading and investment, in general, involve risks at every level and the well prepared are the ones who reap the best out of it.
Myth 6: Extremely high risk
As said already in previous points, in every type of investment, there is risk involved, and the issue of risk is a relative topic. The risk level in day trading can be assessed by experience, tools, and resources, as well as the kind of stock you trade.
It is strongly recommended to get a good education, training, some level of understanding and skills in reading both fundamental and technical analysis before you start.
As a beginner or someone starting out in day trading, it is recommended to take it slow and small, at least with that, you would be able to pull the brakes before you hit a ditch.
Another good way to curtail risks in trading is by drawing and shadowing from mentors.
Most mentors are experienced professionals who have been tried and tested. Learning from these mentors will make it easier.
You can draw from their years of experience, know what works and what doesn’t work, this doesn’t guarantee 100 percent immunity for risks but it does give you some form of a safety net.
Myth 7: Low volatility stocks are very are safe to trade
Many day traders lose money because of shallow assumptions like this one. Logically, it makes a strong point, but, in as much as low volatility stocks have some form of stability, it is not a sure way or guarantees to earn by trading. You have to back it up with strong fundamental and analytical skills.
Low volatility cannot stand on its own as a strong factor to determine your trade. It might be best classified as a good pointer as to which direction you must take in terms of choosing the right stock to trade.
Myth 8: The majority of traders end up in a loss
As we spoke about under risks, you need a good education, tools, and more practice to better your chances of earning. The majority of traders who lose trades mostly don’t put in much preparation.
This is not to generalize the fact that every trader loses trade because they didn’t prepare. Some might have prepared and still lose trades. But the latter group of traders is always likely to have a good come back after a red day.
This explanation can accurately disperse this myth, in fact, the probability of a trader losing trades is widely dependant on several factors. There is a balance, people lose trades, others win, it all depends on the trader.
Myth 9: The stock market is complex
This is a long-standing misconception, especially for beginners. Some of the technicalities and seemingly complex charts scare them off.
In general, there is nothing difficult about the stock market, trades and charts. It all depends on your readiness to learn and gather experience from mentors as well as educational tools.
In fact, many trading platforms have simplified these tools to make it easy for beginners to understand and utilize.
Myth 10: It should be full time
The majority of day traders are part-time, some also do it as their only profession. Setting this perspective as to whether to do it full or part-time would largely depend on your purpose and set target.
Looking at it from another angle other than the target factor, one thing that plays a major role is setting aside time for trading.
This will help you become conversant with not only how the tools and platforms works, but market technicalities and how the system moves.
Familiarizing, adjusting and adapting requires consistency. This consistency will come from the time you devote to better your day trading.
Setting a target and allocating time will dissolve this myth. You don’t necessarily need to go into it full time, your target, dedication and time allocation would be a determinant.
How not to be caught up in these myths:
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