5 Trading Assumptions that Amateurs Need To Avoid

Every professional trader started off as an Amateur but they gradually improve by eliminating mistakes and false assumptions that they may have. If you are really keen to become a professional one day, here are some of the common assumptions that you may want to eliminate. Worst of all, these mistakes are not new and Amateurs have been warned over and over again.

Today’s article is to re-iterate the issues and I will explain this from a different perspective.

1. "I am searching for the Holy Grail"

Let me take this slightly further and the following are two important points to note.

Firstly, traders need to understand that a trading system is just another low-risk method of entering and exiting the financial market given specific market conditions. For the sake of discussion, that system can only be a with-trend system or a counter-trend system – generally, it’s almost always one (or the other) and not a combination. The great thing about this is that both the trading systems will likely perform will given the right market conditions.

Secondly, and like it or not, everyone has a different Belief about the financial market. For example, some believe that trading with trend is most profitable because going in the direction of the Trend provides a higher chance of winning. On the other hand, contrarians believe that the real profits come when you are at the start of the new trend. Hence, they enter the market as the new trend unveils itself i.e. counter trend. This belief held by the individual would indirectly represent his/her personality.

Now, when you put both the above points together, I think I can confidently say that the With-Trend Trader would very likely excel using a With-Trend trading system. Meanwhile, the contrarian would likely excel in a counter-trend system.

It probably sounds really simple. However, many traders are usually confused about the Beliefs they hold. Hence, they constantly try to search for the Holy Grail trading system.

2. "I need to know Everything"

Nonetheless, it is vital that you need to know everything about your Trading Edge. A trading edge is something that gives you an advantage over the market. It is somewhat similar when compared to a casino but we are aiming to be the House and Not the Gambler.

If the House (casino) invest so much time and effort to get the probability in their favour, we as traders should be working equally hard to achieve that.

3. "I need to be in Multiple Markets"

Many amateur traders have a tendency to dip their toe in different markets. To be fair, I went through the same journey as well. In line with point 1 above, many traders wanted to know which market would be most profitable. And they end up being in too many markets.

There is no hard and fix rules to the number of markets you should be in… And the truth is, it’s really down to you as an individual. However, please do not start off your trading career on multiple markets. In fact, if you read the book Market Wizards (more details) by Jack D Schwager, you’ll come to realise that all the Master Traders that Jack interviewed almost always only specialise in one market.

If the Top Traders do it take way, why should we do it another way.

4. "When I lose Money, it is the Market’s fault"

On that basis, I really can’t tell how and why that if a trader loses money from trading, he/she would end up blaming the market? In fact, it is probably due to the lack of experience or knowledge that causes a trader to lose often.

In my view, the trader needs to stop blaming the market (or anyone else) and start taking responsibility of his results. As mentioned above, traders need to know their edge and, very often, traders do no take responsibility of their actions which then lead to long term losses.

5. "I need to be in the Market All the Time"

It’s true that many traders start learning the markets by observing the market constantly. From a learning point of view, that’s a good attitude to have. You’re pretty much trying to understand the behaviour of the market and, in due course, you’ll learning to filter the market hours that are useless to you trading system.

For example, the Forex market tends to be more active when the Europeans start their day and it gradually quiet down after the Americans head to bed. Meanwhile, you get some activities pre and post news announcements.

As you can see, all these only happen during certain time of the day, week or month as oppose to All the time.

In my personal experience, I’ve met traders who spend between 30 min to 4 hours per day trading. I believe that is a reasonable amount of time required by professionals and still be profitable.

Conclusion

Above and beyond that, try to find a trading mentor or coach. These little confusions can be eliminated if you have a professional guide.

Also, try to keep things as simple as possible - especially in trading. Trading isn't take hard once you know what you're looking for, you just need to know what to look.

Thank you.

Thank you for reading and happy trading!!

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