How to Complicate Your Trading: Bad Advice for Traders
Do you hear appeals at every turn to quit your job and start trading? Are the examples of successful traders actively imposed on you and you are sure that you can repeat their path? Do you think that all you have to do is guess the price movement direction? Alas, it is not that simple, but very interesting! Are you used to the classical phrases like "follow the trend" or "follow the majority"? Then these harmful tips for traders will do you good. Follow them to lose money as quickly as possible.
Why Don't We Follow Good Advice?
Let's face it, we don't always follow sound advice, and this is very evident in trading. If the advice is really sound, you have to work very hard to get a positive result, and most traders are too lazy to work hard. And there is bad advice that promises to shorten the path to success, but 99% of the time leads to the opposite of what was expected. We all sin by counting ourselves among the other 1% who are lucky. So when we're given valuable advice about trading the market that involves gradualism, learning, and hard work, we ignore it in favor of easier and faster ways.
Adults, including traders, continue to act like children in many ways. Psychologists will tell you that everyone has multiple selves. One of such "selves" is a naive and silly child. On a subconscious level, it continues to influence our thoughtless decisions in adulthood. How would we use this fact to our advantage?
Bad Advice is an Inoculation Against Stupidity
The highest level of protest manifests itself in adolescence: there is an overwhelming desire to break the system, to go their own way. With age, many people blunt it, but quite a substantial part of people develop a spirit of contradiction even stronger.
Let's stop giving traders good advice, and start giving bad advice, counting on the fact that they will still get it their way, that is, the other way around. The idea is so good that even when they read this devious plan, the idea will still work. The writer, Grigory Oster used to say, "Bad advice is an inoculation against stupidity." He proceeded from the idea that any more or less reasonable person would never agree with the obvious stupidity, and therefore will be protected from it.
- Buy on an uptrend, sell on a downtrend.
A classic fallacy that inevitably leads to a loss. The opposite rule of trading against the trend is an even bigger fallacy. The problem is the wording. You should buy or sell an asset not because it has risen or fallen in price, but because you have reason to believe the price will change in the future. A change in the price of an asset is a consequence, not a cause.
But most traders follow the trend. Someone manages to benefit from the main movement at least part of it. Someone buys on the peak and loses money on the reversal. This situation is often seen in cryptocurrencies, where beginners try to catch the trend of the volatility of 2-5% per day. But they forget about margin and market makers.
- Gain experience in the stock market.
This bad advice for investors has the following rationale. Currencies are priced relative to each other. And each country keeps the exchange rate within a range to keep the trade balance. Stocks and indices rise without an upper limit. But the issue is that trading and investing are different things:
- Investing is long-term investing on a rising trend.
- Trading is short-term earnings on price movements in both directions.
Anyone can buy stocks, but pushing buttons is only an illusion of experience. A trader must understand the essence of the market, and the principles which move the price. The profitability of stock indices is 20-50% per year. Professionals may double their deposit for several weeks on currencies.
- The stock market is always growing.
This is a double-edged sword. But the conclusion is partially justified in the previous paragraph. The currency market moves in a range, the stock market has no upper limit. And in favor of the stock market is the fact that it has been recording historic highs for the past 2-3 years. But let's not forget that the indices were loss-making for several years before the current rise. The wave theory works, which is why a pullback is just a matter of time.
And here again, the question is: what is the goal? To invest in the stock market or to make money from speculative trades in currencies? For a trader, it doesn't matter what goes up and what goes down - he makes money on trades both ways.
- Quit your job - start investing.
Returns on indices are 25-50% per year. Given the volatility of income, it makes sense to take an average of 15-20% per year, closer to statistical reality. Will you be able to live on a percentage of return for a year? If not, it's too early to quit your job. The same applies to currency trading: for 1 month you could earn an amount that is at least 20-50% of your monthly income - then it makes sense to make trading your main business. If not - take your time.
- Copy successful traders - make money!
There is an opening in chess that implies repeating your opponent's moves. It always results in the defeat of the black pieces. In trading it is the same:
The trader is always one step ahead. Although the copying to the investor's account is instantaneous, there is an important "almost instantaneous" moment.
Different conditions. The trader's deposit can withstand a 50-point drawdown. What about yours? Percentage copying will solve the issue, but can you account for other variables?
Are you sure you're copying a trader's trades and not a scammer or bot?
Social trading has a right to exist. And it may well be profitable. But it is not easy money and requires good knowledge. A person with a working strategy is not interested in sharing it with others. After all, others can copy the idea.
The result in trading is the result of your work. Do not listen to bad advice for traders - think with your head. Develop a theoretical basis, try your forces on a demo account, believe in yourself, and you will succeed!