Common Misconceptions about Financial Trading
People tend to keep away from stock markets, because of fear arising out of misconceptions. These ill construed thoughts make them loose out on the opportunity to make money trading financial markets. In this article, we will see some of these misconceptions and explain the actual reality.
1) Financial trading is gambling
This is the most prevalent misconception among the people. These people having little to no knowledge about financial markets think of them being similar to casinos, where you should be lucky to make money trading. This was due to the lack of transparency in financial markets, but with the advent of electronic systems, there is much more
transparency in the markets and real time market data is readily available on the internet. Ask any trader in the financial markets, he would tell you market is a “place full of information”. In fact, Terabytes of information will be available for each minute in a trading session. Many don’t know to read these information as they think it is a complex process while many don’t know to make trading decisions with the available information. They ignorantly take a shot in the dark, lose money and blame it on the market.
Professional traders will make use of all the information that a market disseminates. Use various tools and techniques to “extract useful data” from the available information pile and time their trades based on the data. Simply said, Unlike Amateurs, who take blind shots, Professionals will always have the “reason to take a trade with backing up data”.
2) You need vast knowledge to be a trader
Like I said earlier, people generally tend to ignore the information which the market gives us. They think, it requires a lot of knowledge to “read the market”. Without taking any effort to read the markets, they tend to depend on indicators to make their trading decisions.
Indicators will indicate only the price movements. A proper trade is done with a timing and with loss minimization strategies. Indicators will not serve any real purpose in designing a proper trade.
Anybody with the ability to read the charts and having shrewd financial skills can be a good financial trader, with experience and the correct trading attitude can become better in trading financial markets.
3) The Might is Right in the market
There is thought among the commoners that, In stock markets, the might is always right and that you need to invest more to ‘control the market”. while it is true that the influential players can manipulate the market to a small extent, they cannot change the market trends.
You need not have a huge purse to be a successful financial trader, A computer with an internet connection, A trading account with a small sum and a trading setup with proper plans are enough to be successful in the financial markets.
In the stock market, the price is always right. Price movements in the stock market is a result of either pessimism or optimism, people collectively have as a whole. Market does not know ,neither does it need to, if you are rich or poor, black or white. All that matters in the market is the knowledge and skill which you can acquire with practice and experience.
4) Prices will eventually rise
This is an interesting misconception arising out of human emotions. While your emotions control your behaviour in the market, it doesn’t control the market. Just because you think the prices of a script will increase or decrease eventually, it need not be the case. Making market decision on speculations is suicidal.
Some people have the tendency to buy “cheaper stocks” of good companies, expecting the prices to raise sooner or later. But they will not pay attention to knowing what caused the fall. They might have stepped foot on a trap.
These are some of the many common misconceptions prevailing about the stock market. Hope this article would have cleared some of the common misconceptions about the financial markets.