3 Day Trading Myths Hurting Your Chance at Success

day trading myths
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In every field, not just trading or day trading, myths circulate. The more we see or hear them, the more believable they sound. Most people end up accepting these myths as fact mainly because they don't question the myth (or lack the knowledge to dispute it). It's also possible someone could believe the myth to be true without even realizing or knowing it. In both cases, the belief is shaping your trading, possibly with negative consequences.

Here are three day trading myths (well, six) that may be doing just that.

Myth: Complex/Simple Strategies Are Better

This idea that complex strategies are better, or worse, than simple one can't be proven as a general fact. There are people how make money with complex strategies and there are people who make money with simple ones. Each trader trades slightly different, so there is a wide spectrum of personal strategies being utilized in the market.

Find what works for you, be open minded during your learning phase, and don't let a common myth like "Complex strategies don't work" or "The market is too complex for a simple strategy to work" deter you from something that is producing favorable results.

If complex and simple represent the extreme edges of the types of strategies being used, then most traders and strategies will fall somewhere in the middle. Unfortunately, where it falls on the simple/complex spectrum isn't necessarily correlated to how it performs.

Myth: More/Less Trades is Bad/Good

A trader should take the exact number of trades their strategy dictates, no more no less. Advice such as "You shouldn't trade so much" or " You should trade more often" is usually baseless and out of context. High frequency traders (HFT), whether automated or manual (yes there are manual high frequency traders), may make hundreds or thousands of trades a day, and produce a profit most days.

Other traders may only trade once a day and produce a profit most days.

To tell the HFT to trade less and the one-trade-a-day trader to trade more is unfounded, unless there is some substantive statistics to back up the advice. For example, if the low frequency trader could increase returns by using the same strategy and making two or three trades on average, then she could take more trades based on the data. The HFT could use similar statistics to assess whether profits could be increased by trading more or less.

Once you have a trading plan, stick to it; as long as it is working, how many trades you take doesn't matter. If you don't have a plan, or have one and don't stick to it, that's where the problems develop. In those cases, you are just randomly taking trades and hoping they work out, and that's never a good idea.

Myth: Trading Is Impossible/There's a Holy Grail

For most myths, as discussed above, there are two sides to it. One myth will often be in conflict with another. The holy grail myth is a great example. There are those who campaign against day trading, saying it will take every penny you have. That is a possibility, as success rates are low in day trading. But day trading is not impossible; understand it is not easy, but there are people who do it for a living.

On the flip side, there are those who are convinced that there's a secret code to the market, and if unlocked they can make easy money whenever they please. Most new traders will say they don't believe in the holy grail of trading, but their actions dictate otherwise. Despite knowing that day trading is a skill and takes time to master, and also knowing that losing trades are routine, most people abandon a strategy as soon as it sees a few losing trades. They seek out something better; the search for the holy grail is in effect, yet the person doesn't even realize it.

Maybe there is a holy grail of trading, who knows, but one thing IS certain: you don't need the holy grail to make a living from day trading. All you need is a decent strategy that wins a bit more than it loses, and the wins are as big or slightly bigger than losses.

Final Word

There are usually two sides to every myth, which means you can end up swinging from one extreme to the other--believing simple strategies are the best, and then being convinced complex is the only way to go. With so many successful traders trading in different ways, don't assume there is only one way of doing things. Do what works for you. Now that you're aware of some of the trading myths, don't just voice your knowledge, change your actions. Think about how these myths may be negatively impacting your performance. Write down steps and practices you could do to lessen the negative effects.