There are many misconceptions among all traders which prevent them from becoming successful. Sometimes a trader may see a very good opportunity in front of him but these misconceptions will not let him take the first step. If these misconceptions are not addressed this hesitancy will happen again and again. By tearing down these misconceptions you can get the real picture of the market and act accordingly. While it is not easy to change what are commonly held beliefs, this article will address a few of them and give you the tools to be empowered in the market, no matter what you trade.
Let’s begin with being a buyer, i.e. long, and seller, i.e. short, the market simultaneously. Many traders think that by being long and short the market at the same time means that each position cancels the other out, and the trader may end up gaining nothing at all. This is not entirely accurate. While you can make a long and short contract cancel each other out you can also use them together in order to create insurance. One position protects the other, creating a risk management strategy that can be expressed a myriad of different ways. Utilizing this risk management strategy does not automatically lead to a neutral trade.
A second misbelief is that being a stock trader solely means the ability to predict the markets direction with accuracy. It is mainly because they believe that if they only knew where the market was going they would be a better trader. The reality is that profits are made when a trader exits, not when he gets in. By looking at the market in that way they begin to focus more on protecting their investment and figuring out how to manipulate the insurance aspects of the market to their benefit. This is done by looking at the “daisy chain affect”, futures protect stocks – options protect futures and stocks.
Finally, too many traders believe it is too difficult to learn a market’s tendency and the rules that it abides by. They often times feel it unimportant and a waste of their time to learn the history and players of the market. Either claiming it to be too complicated or unnecessary. The truth is though, if you do your research and learn the market theory and combine it with your practical experience then you will find stock trading easier to understand. The lack of proper knowledge can lead to many unnecessary problems and can hasten your failure as a trader.
In the end the market can only move one of three ways, up, down and sideways. If you learn to focus on managing your risk, learn how to trade long and short simultaneously, and become a student of the market, your trading experience will be significantly more fulfilling.
