1. People are born traders. Although certain personal characteristics can make it easier to trade, no one was ever born a trader. A main theme of Jack Schwager’s Market Wizards books is that virtually none of the market wizards was successful from the outset. They all worked hard at it.
2. You have to have a high IQ to trade. This is just not true. In some ways, an above average IQ may be a hindrance. Trading is a human performance activity where strong intellectual abilities are not necessary.
3. Successful traders are successful because they have the “right trading personality.” There is no such thing as “the right trading personality.” Researches have been unable to find a strong correlation between personality type and trading success. It is important, however, to understand your personal characteristics and how they may help and hinder your trading.
4. Trading is easy. Just follow your indicators, maybe draw a line or two and buy low/sell high. Easy, right? The truth is that trading is a difficult business to master. It involves different skill sets and abilities than what are needed in most other professions. The trader must develop specific skills to deal with the mental and emotional demands of trading. These skills are the most difficult to develop and the most overlooked.
5. You must be tough, hard charging, and fearless to be successful. That’s more media hype than anything else. It glorifies a strong ego, which is a detriment in trading. The most successful traders I know quietly do their research, study the charts, and patiently wait for the right moment. They strive to keep their ego out of their trading.
6. You must trade without emotions. If you are human, that’s impossible. More importantly, when you understand your emotions you will realize they are assets, not liabilities. The real keys are: 1) to be aware of how your emotions interact with and influence your trading, and 2) to develop the skills needed to trade with them.
7. Top traders are usually right about the market. Top traders have many scratch and losing trades. Top traders are successful because they exercise good risk control, limit the amount of loss from any given trade, and have developed a psychological edge that allows them to be unfazed by small loosing trades. Most of their trading consists of modest profits and very small losses. When conditions are right, they step up size and let the profitable trades run.
8. Paper trading is useless—it’s not a real trade without money behind it. If you aren’t paper trading, you are doing yourself a disservice. You should always be paper trading your trading ideas. Why limit your education and experience by the amount of capital you have? Paper trading keeps you sharp; you learn the conditions under which your trading ideas work best. Where else can you get such vital education at so little cost?
9. Master the technical skills and you will be successful. This is where most traders spend the vast majority of their time, but it’s only part of the picture. You also have to learn important performance skills. Traders should spend as much effort learning to develop their psychological edge as they do in developing their technical trading edge.
10. Trading is stressful. It certainly can be stressful, and it certainly is stressful for many. It doesn’t have to be. Successful traders have a certain mind-set. They put little importance on any given trade. Their focus is on the long haul. They know that if they attend to the aspects of trading that are within their control (i.e., trade selection, entry, risk control, and trade management) the profits will take care of themselves.
Surprised by any of these myths, or do some ring true? Your mental trading skills can be the key to trading success. A good place to sharpen your mental skills is at the author’s website, which you are invited to check out by clicking this link. There you will find free resources, including a 7-part guide to trading psychology.