Trading is a risky business, so there are a lot of mistakes that new traders make in the beginning.
Trading is a risky activity, therefore the possibility of making mistakes is very high, errors that can sometimes be serious especially if we consider the learning processes that require precisely "making mistakes to learn". Sometimes these errors are repeated and the trader loses self-confidence and abandons the activity without realizing how much his error was the result of a huge cognitive bias or an unhealthy reading of this activity. Let’s see the most common mistakes together and then analyze them to actually define what trading is.
First mistake: thinking you know how to trade
The first mistake is definetely this: thinking you know how to do an activity that is actually complex and that requires continuous updates both from the technical side and from the psychological side. Many think they know everything having studied a few books or having done little practice when in reality you need a lot of practice and knowledge. In fact, it is never enough to establish how expert you actually are in the field.
In trading, we see many professionals who face periods of difficulty due precisely to the continuous change in market conditions, therefore a neophyte will never be able to consider himself an expert or in any case capable of trading if he never faces periods in which the market could question its capabilities after a long period of being (and actually being) profitable.
It follows that in trading you never stop learning, especially in the field of analysis. Trading requires a lot of direct experience on the markets, so thinking that you can make a lot of money in a short time is pure naivety and whoever promises you this is just pulling the wool over your eyes. Obviously this activity is only suitable for those who really want to learn and above all it requires a very high dose of humility as very often the market charges for the excesses of presumption. In essence, lack of humility is the first and biggest mistake in trading.
Mistake 2: Trading is a job, not a hobby
Trading is work. Have you ever heard of someone wanting to be an engineer or a lawyer as a hobby? Very hard to hear this, yet many say they are hobby trading, a hobby which (according to some) is also profitable. Difficult to find someone who carries out a profitable profession as a hobby, it’s a contradiction from the outset. If your hobby is a profession and it is also profitable, why not pursue it full time and then call yourself a professional?
Believing in the fairy tale that trading is a hobby is absolutely naive and should be considered as a mistake in approaching the profession. This is a profession and, therefore, carrying it out profitably requires commitment and perseverance together with a strong component of "passion for the subject". In this sense, we are speaking above all at those who think they can make money in a short time and effortlessly, belittling this profession into a pastime. You can learn to trade and do another job at the same time, but the type of trading you do is much closer to a form of investment than to actual trading, therefore we are talking about very similar but fundamentally different activities. An investor is not a trader and vice versa.
Third mistake: thinking that there is a "magic" formula
Another serious mistake is to think that there is some sort of formula or some "trick" to make money with the markets. Unfortunately there is no magic formula to make money, otherwise we would all be rich, but there is only professionalism given by experience. There are no methods, formulas, trading robots capable of generating money automatically without any errors. In trading even the most experienced do mistakes. What turns out to be the most decisive factor in the long run is precisely the managemens of said mistakes. A method, or an operating methodology, can last for a period but then the markets change, the dynamics change and the operating approaches change.
A professional understands what to do and how to do it as market conditions change. Strictly speaking, the method does not take market changes into account. To give a blatant example, there are traders and investors who in recent years have always ridden the bullish wave according to the mantra "prices go up in the long run". This lasted for 10 years and now this approach is absolutely losing without a shadow of a doubt, just look at the returns of the stock markets in recent months.
In conclusion
As you can see, we didn’t talk about operational errors, but errors in approaching the profession. Just the approach to the profession, by novice traders and others, is wrong and leads to failure in both the short and long term. Many of us see advertisements and messages that show that trading is easy and that it is even close to gambling. Many see it as some sort of gambling hall when in reality they see it that way because they don’t know the risks. Even crossing the street could be a gamble, but only if we are blindfolded and don’t see if any vehicles are passing by. It becomes a gamble precisely when we don’t "see" and we manage the risks of what we are doing.
Basically, there are many wrong messages about trading and it’s a shame because this profession, if carried out with the right approach, is a very stimulating and never repetitive profession, competitive and at the same time exciting (but not too much). In essence, culture and experience make the difference in the long run and only the right approach is worth a large part of the final result in this profession.
Original article published on Money.it Italy 2022-09-08 08:57:00.
Original title: Trading: gli errori di base
