4 Common Myths and Misconceptions about Day Trading
by Mashum Mollah Finance 31 October 2018
If you’ve been dabbling with investing for a while, then day trading has probably sparked your curiosity already. However, day trading is shrouded in a lot of mystery and most people have tons of misconceptions on what it is exactly and what kind of results they can get. But it’s essential that you debunk these myths before you even start thinking about becoming an independent day trader or starting a day trading firm. Here are some of the most common misconceptions people have about day trading.
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It’s a Scam:
One of the most pervasive and widespread myths about day trading is that the whole industry is an elaborate scam that was created by savvy stock promoters in order to pump up stock prices and help a select group of investors take advantage of the naiveté and inexperience of new traders to get rich.
While this is mainly a myth, there is a grain of truth in there. Pump and dump operations happen all the time and they happen with day trading as well. Stock promoters will push the price of certain questionable stocks, only for them or a group of their close associates to start dumping their stocks, sending the price plummeting.
However, this is just one minor issue and it doesn’t define the whole industry. To reduce the whole industry to this phenomenon is just plain wrong.
Also, there are some ways that you can identify pump and dump schemes or even cut your loss if you follow some simple stock trading for beginners tips. Knowing how to pick the right entry point and setting clear limits will help you not get overwhelmed with what seems like a great opportunity. Just having a sound understanding of the basics will help you avoid many of the pitfalls new traders fall into.
It’ll Make you Rich Overnight:
Day trading has been sensationalized by many in the industry and portrayed as a way any trader can become rich overnight with little or no training or experience. While it is true that day trading has made a lot of people rich, you have to be prepared to do the legwork it takes to get there.
Are you prepared to devote yourself completely to acquiring all the knowledge and learning what personality traits you need to become a successful day trader? Do you have the humility it takes to accept your shortcomings? And are you ready to put in the work it takes to develop millionaire habits?
If you want to make it as a day trader, you will need time, energy, discipline, and a significant amount of commitment. If you’re up for the challenge, becoming rich is a possibility.
You also shouldn’t expect that you’ll be successful on the first day. Sure, there are exceptional traders out there who started being profitable on the first day, but you should have realistic expectations once you start.
Most successful day traders had to learn from trial and error and were far from efficient at first. As a matter of fact, losing money at the beginning is a great way to learn from your mistakes and find ways to avoid and correct them. And a trader who started with huge gains early might start to become cocky and might not worry about things like risk management, for instance. It’s better for you to start earning gradually. As you start honing your skills, you can get a glimpse of the good and the bad.
You Don’t Need Specialist Training to be a Day Trader:
This is one of the most peculiar, yet very popular myths people have about day trading. While it is true that you don’t necessarily need any type of certificate to be able to trade as a day trader, you will still need some level of formation before you jump into the waters.
If you want to improve your skills eventually, you’ll need the right foundation and practice. There are plenty of courses out there that will help new traders become efficient. Look for a program that will not only teach you the basics about being a day trader but will also help you with things like identifying patterns, creating effective trading plans, and allow you to find a system that will work for you.
And you shouldn’t assume that you’ll become a great trader simply by understanding the basics either. Studying is a great way to improve your trading by expanding your knowledge base, and you have to be able to adapt to market realities and try to adopt patterns and strategies that are effective at the moment. So, you always have to be ready to adapt to an ever-changing market and never stop studying. The best traders never stop learning and you have to have the same mindset if you don’t want to eventually become obsolete.
You Can Make Thousands in One Trade:
Ok, this one is only partially true. But this statement can mislead new traders into thinking this is something that happens all the time. While yes, it is possible to make thousands from a single trade, this is not something that’s very common, especially if you’re starting with a small account.
Instead of waiting for that one big trade, you should instead start working on a strategy that will bring you steady results. While big trades usually mean big risks, the opposite is also true; you can easily lose thousands in one small trade as well. That’s why it’s essential that you have a clear trading plan in place and that you did everything in your power to get as much knowledge on day trading as you could to make wise trades.
While day trading can be a great way to invest in the stock market, it isn’t as simple as many people think. You have to make sure that you have the proper formation and that you the right set of expectations before getting started, so you don’t get disillusioned very quickly.