Myths can be detrimental to a trader. It can guide them towards the wrong path and cause them to make bad financial decisions. Debunking these myths is an important first step to clearing the fog that has long prevented investors and traders from making money in their chosen financial markets. Here are the 4 most popular myths that circulate around the financial industry.
Myth#1 – Trading Is Just The Same As Gambling
This is something you will commonly hear from family members and friends when you tell them about your plans to pursue a trading career. Trading and gambling are different from each other yet is something most people outside of the trading industry fail to comprehend. In trading, you are actually the casino rather than the mindless gambler spending his chips. A true trader only enters positions where the odds are in his/her favor.
Myth#2 – Markets Are Reserved For Rich Folks And Their Brokers
Financial markets remain the most accessible capitalistic industry worldwide, despite proactive government regulations, high frequency trading algorithms, manipulation in supply and demand of private sectors, and the “dark pool” layer of the markets. The market is open to all newcomers who are interested in profiting from market activity. In fact, nowadays, you can easily open a basic broker account for less than $100 and start monitoring those price blips on your screen.
Myth#3 – Market Crashes Always Recover Eventually
From US’ Black Monday of 1987 to the Japanese Asset Price Bubble of 1991, market crashes have been causing chaos for centuries. One thing you need to know about them is that they don’t immediately recover. Although it might get back up to previous levels where you bought it, it might not regain its strength for years or even decades, resulting in all that missed opportunities and time to grow your investment capital.
Myth#4 – Markets That Go Up Will Come Down
This is especially true for equities. Just because Apple shares are currently overpriced at $500, this doesn’t mean you have to go dive in on a short position. It might not hit $100 for another few months or years, and instead could hit $1,000 first thereby wiping out your account. Never assume that the market is going to do something just because it feels right or has happened once before.
Just ask veteran investors like Brad Reifler. The serial entrepreneur/investor has seen several market crashes unfold in his years of experience in the financial industry. He commandeers one of the most successful global financial services firm, Forefront Capital, and has headed several businesses in the past including Pali Capital Inc, which he founded after graduating from college.