Common Misconceptions About Trading-Investment

One of the main reasons traders fail is that their minds are filled with misconceptions about the reality of trading. Misconceptions make trading easier than this. Ten of these misconceptions are thrown here.

If you successfully return to the test, it will work in the future. One of the popular techniques in creating a trading system is to start with a specific idea, translate it into a mathematically measurable charting concept, and then try it again. Back testing is usually done with a computer program designed for that purpose. You enter the parameters of your program policies and select a time period to apply these policies to the charts. The program automatically applies those policies and gives you a report showing how much money you want to make or lose in that system during that time. A more respected approach is to take a system, after successfully back testing, and conduct out-of-sample testing -that is, take a trading system that has grown heavily on selected historical data and then select a completely different time period of historical data and run the system on it. The idea is that if it worked in both historical time periods, it probably just wasn’t curve-fitting and stable enough to be successful in the future. The Securities and Exchange Commission (SEC) requires the fund to tell investors that "a fund's past performance does not necessarily predict future results."

The market comes out to get you. Some traders felt that someone in authority with big money should be taken to the rest of their trading on purpose, singing to them to turn almost all of their trades into losers. The entrepreneur is simply doing everything wrong. Trade is unnatural, and therefore people continue to do wrong things by their very nature. People are usually contractors. So the market is moving, the trader after shorts the shorts in the market, always trading against the trend (but you know better than that, right?).

Trading is easy - just follow the trend. Being successful in trading is not as simple as following the direction (trend) of the market. The market trend is critical. Determining the market trend at any given moment is easy. Will the market continue to move in the direction of the trend after you buy? To assess that, you also need to know the momentum of the market (how strong the trend is), how early you got the trend (everyone has already bought, or there are still many market participants with their money in the market). which side can join the trend?), whether it is the right time to enter (cycles), whether you are bouncing a support level, and what momentum strength is in the higher dimension. More importantly, trading is still not easy even if you have a successful trading technique, because the hardest part of trading is your self -discipline.

Professionals know a secret you don’t have access to. The world of trading really holds a lot of secrets. High frequency traders will not give up on their edges, and those with successful computer trading models are unlikely to give it to you. However, there is no major secret that is inaccessible to you that prevents you from becoming profitable. The biggest “secret” of successful trading is more about self -management than market management. It is no secret in the sense that knowledge is not available. It’s just secret in the sense that most people refuse to believe it.

You will be successful if you only have one special indicator. It is often said that trading does not have a "Holy Grail." Trading is about developing a trading method with enough variables that, when combined, provide a high probability scenario that favors your profitability over a large sample of data. There is not a single thing you will get money, especially not an indicator. Indicators do what they promise: They indicate. They cannot predict the future. These are derivatives of price, quantity, and / or other factors they measure, all combined in a mathematical format. Ayan yun. There is nothing magical about them.

Commission prices don’t matter. Like any business, trading has costs. The more you can reduce your costs, the more net you can make. Some things are worth spending money on because they earn you. If you are a day trader, for example, you want a fast computer and a fast Internet connection. Those are the costs that will cost you money. Full-service brokers generally charge more for commissions. If you want a full-service broker for the extra services they provide, you might want to go that way.

It is best to follow the advice of professionals. The only professionals who tend to be helpful are the ones you pay to provide private meditation. They will give you something of value, even if you don’t end up using their method.

You have a gut feeling for where the market is headed. You don’t have a special intuitive connection to the market. No one made. At times, you can earn money for a while and start believing that you are special. That was not an unusual experience, but inevitable followed by a series of horrific losses.

You will be successful if you trade exactly like your advisor. Just because some people are successful traders does not mean you will be successful if you follow their methodology. The first issue may be that you don’t have the same kind of psychological disposition as they do regarding discipline, keeping a cool head, and not getting too emotional. The other issue is that their method may not suit your personality.

You will benefit if you can find a trading method that has worked. Many people have successful trading methods, and they don’t know it. This may be because the technique does not fit their personality. It may be because they are undisciplined and not focused. It may be because they have a lot of mistakes, and they don’t bother to record them in their trade log and correct it.

“Success” in personal investing is in the eye of the beholder. A successful investor is someone who, with a moderate commitment of time, will develop an investment plan to achieve financial and personal goals and who earns competitive returns given the risk desired. he would accept. Here are ten common barriers that can prevent you from successfully and fully realizing your financial goals.

The trustworthy authority

Some investors assume that an advisor is competent and ethical if he or she has a high title (financial advisor, vice president, etc.), dresses well, and works in a snazzy office. Unfortunately, such accessories are often indicators of salespeople - not goal advisors - who recommend investments that will earn them huge commissions that come out of your investment dollars.

If you trust an advisor too much, you may not research and track your investments as carefully as you should. Too many investors blindly follow the stock recommendations of analysts without considering the many conflicts of interest that the employees of this firm have. Brokerage analysts are often cheerleaders for buying different stocks of companies because their companies are negotiating the business of new stocks and bond issuance of both companies.

Swiping euphoria

Feeling the strength and safety in the numbers, some investors focused on buying hot stocks and sectors (e.g., industries such as technology, healthcare, biotechnology, retail, etc.) after major increases of price. Psychologically, it’s satisfying to buy into something that goes and gets accolades. The obvious risk with this practice is that buying investments that sell at increased prices will soon be reduced.

Develop an overall allocation across different investments (especially different mutual funds), and don’t make knee -swapping decisions to change your allocation based on what’s the latest hot sector. If any, de-emphasize or avoid stocks and sectors that are at the top of performance charts.

Being overconfident

Newsletters, books, blogs, and financial periodicals lead investors to believe they can be the next Peter Lynch or Warren Buffett if they follow a simple stock selection system. The advent of the Internet and online trading capabilities has released a whole new generation of short -term (sometimes even same day) traders.

If you have a speculative bug, mark a small portion of your portfolio (no more than 10 to 20 percent) for more aggressive investing.

Giving when things seem fuzzy

Inexperienced or nervous investors may be tempted to take out bail when it appears that an investment is not always profitable and satisfactory. Some investors are dropping falling investments precisely when they should do the opposite: buying more. Sharp stock market pullbacks attract a lot of attention, leading to anxiety, anxiety, and, in some cases, panic.

Investing always involves uncertainty. Many people forget this, especially in good economic times. Investors are more likely to be comfortable with riskier investments, such as stocks, when they recognize that all investments carry uncertainty and risk - only in different forms.

The larger-than-normal market decline poses a major risk for investors: They may encourage decision making based on emotion rather than logic. Just ask anyone who sold after the stock market collapsed in 1987 - the U.S. stock market dropped 35 percent in a week in the fall of that year. Since then, despite significant declines in the early and late 2000s, the US market has risen by fifteen!

Refuses to accept a loss

Although some investors realize that they cannot withstand losses and sell at the first signs of trouble, other investors have found that selling a lost investment is so painful and unsatisfactory that they continue to hold a bad one. making investments despite poor future investments. Psychological research supports these feelings - people find the pain of accepting a given loss twice as intense as the pleasure of receiving a gain of equal greatness.

Analyze your emerging investments to identify why they are not doing well. If a given investment goes down because similar ones also go down, hold on to it. However, if something is inherently wrong with the investment - such as high fees or poor management - you can make taking a loss more attractive:

• Remember that if your investment is a non-retired investment account, selling at a loss helps reduce your income taxes.

• Consider the opportunity cost of continuity to keep your money a vibrant investment. In other words, what return will you get in the future if you switch to a “better” investment?

Over-monitoring your investments

The investing world seems so risky and full of pitfalls that some people believe that closely watching an investment can help alert them to impending risk.

Investors who are most anxious about their investments and likely to make persuasive trading decisions are the ones who keep an eye on their holdings, especially those who monitor prices daily. The proliferation of Internet sites and stock market cable television programs offering up-to-the-minute quotes gives investors even more temptation to over-track investments.

Limit your diet to financial information and advice. Quality is more important than quantity. Watching daily investment price gyrations is like me eating too much junk food: Doing so may satisfy your short-term cravings but at the cost of your long-term health. If you invest in a variety of interrelated and exchange -traded funds, you don’t really need to review your fund’s performance more than twice per year. An ideal time to review your funds is when you receive their annual or semi-annual reports.

Being vague about your goals

Investing is more complicated than just setting your financial goals and choosing solid investments to help you achieve them. Awareness and understanding of less tangible issues can maximize your chances for investment success.

In addition to considering your goals in a traditional sense (if you want to retire and how much your children’s college costs you want to pay, for example) before you invest, you should also consider wanting you do and you do not want to take away from the investment process. Do you treat investing as a hobby or simply another of life’s tasks, such as maintaining your home? Do you enjoy the intellectual challenge of choosing your own stocks? Do not ponder these questions; Discuss them with family members - after all, you need to live with your investment decisions and results.

Ignoring your real financial problem

You may be tempted to think that you can’t save if you don’t earn a high income. Even if you are a high -income earner, you may think that you can hit an investment house to achieve your goals or you will save more if you can drop your income. This way of thinking justifies spending most of what you earn and saving a little now. Investing is more exciting than evaluating your spending and making cutbacks.

Overestimation of their risks

Saving money is only half the battle. The other half is raising your money. In the long run, earning only a few percent will greatly affect the size of your nest egg. Achieving a return on inflation-beating is easy if you are willing to invest in stocks, real estate, and small businesses. The figure shows you how much money you have in 25 years if you earn a return on investment that is greater than the inflation rate (which has historically been about 3 percent).

Slightly higher returns compound to really grow your money.

Ownership investments (stocks, real estate, and small businesses) have historically returned 6 or more percent greater than the inflation rate, while mortgage loans (savings accounts and bonds) tend to produce 1 to 2 percent greater than inflation. However, some investors keep too much of their money in lending investments for fear of holding an investment that could be hefty in value. Although the cost of ownership investment can pay off, you need to remember that inflation and taxes eat into your investment balances.

Believe in the gurus

Stock markets declines, like earthquakes, bringing all sorts of prognosticators, soothsayers, and self -anointed gurus out of the woodwork, specifically those in the investment community, such as newsletter writer, who has to sell. The words may be different, but the underlined message is not: "If you follow my advice, you'll be better off now."

People spend so much of their precious time and money in pursuit of a teacher who can tell them when and what to buy and sell. Peter Lynch, former manager of the Fidelity Magellan Fund, has compiled one of the stock market’s best long -term tracking records. His ability to pick stocks allows him to beat market averages by just a few percent per year. However, even he said (as well as investment legend Warren Buffett) that he couldn’t avoid the markets. He also acknowledges the fact that many pundits have correctly predicted the future course of the stock market “simultaneously”!

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