It’s surprising how many old misconceptions and falsehoods there are in the business world. Listening to traders, you might get the impression that these misconceptions are now accepted as “common knowledge” in the trading world. This article debunks the five most popular trading misconceptions, explains why they’re wrong, and explains how they might hurt your trading results.
Stoploss Is Unnecessary
Trading without the need for a stop loss as a day trader is flawed behavior on multiple fronts. Trading without even a stop loss should be avoided at all costs for several reasons, including the inability to regulate position size, the impossibility of engaging in effective risk management, and the proximity to the complete destruction of one’s trading account on the back of a single deal.
Most investors don’t utilize stops because they are under the false impression that their broker actively seeks those orders.
There is no need to put your hunts on hold if you are working with a legitimate and registered broker.
Since you are probably only stopping where other people are stopping, the pros can easily squeeze you. Avoid making trades without a predetermined stop loss level.
Leverage Kills Trade Lucrativeness
Leverage is a topic that comes up in conversations between traders at all times of the day. Why, though, is the use of leverage in trading so divisive? The solution can be found in the prior sentence.
Leverage is merely a tool as well as a mechanism, and neither good nor harmful in and of itself. Knowledge and a lack of expertise are what make trading with leverage risky.
Trading with a lot of leverage and a lot of money at stake might be a recipe for financial ruin. If the market turns against you when you’re utilizing leverage, even a tiny loss might quickly deplete your funds.
A Reward-Risk Of 1:1 Is The Synonym Of Gambling
When the potential gain from trade is equal to its potential loss, the reward-risk ratio is 1:1. If you make 100 transactions and have 60 winners and 40 losers, you will still come out ahead. This is true even if your reward-risk ratio is only 1:1.
If the rest of your trade settings are in sync, a strategy with a reward-risk proportion of 1:1 may be quite profitable. With a win percentage of above 50% over time, it is possible to make money with a reward: risk ratio of less than 1:1.
A Win Rate Of 50% Is Gambling
If your win rate is 50%, then you will split your transactions evenly between winners and losers, but this tells you nothing about the magnitude of your winning and losing trades.
You just need a 50% win rate to break even if your victors are significantly larger than your losses.
Many highly successful traders use trading strategies with a win rate compared with fewer than 50%, but the successful transactions are far greater than their losing ones.
It’s important to look beyond the victory rate when evaluating a trading method which can be achieved through trading sites like bitcoin code that are focused on providing secure and fast transactions.
Elevated Times Frames Are A Piece Of Cake
Trading on shorter time frames is not more difficult than trading on longer time intervals. Setting your own time horizons is an extremely private decision.
If you lack the necessary expertise, trading on longer time frames can feel like an insurmountable task.
Lower time-frames may be more lucrative if your talents lie in quick execution and emotional stability.
There really is no such idea as “one size fits all” advice in trading. In order to determine your optimal course of action, you need to do an introspective audit.
Bad trading decisions are inevitable if you give credence to those misconceptions and ignore expert advice.
To anyone interested in trading, the sheer volume of available resources can be daunting. A portion of it is based in reality, but the vast majority consists of people exchanging unproven urban legends.
Only after you verify the information through additional investigation will you have the confidence to employ it in your trading.