Popular Trading "Wisdumb" That Will Make You Broke

Common knowledge doesn't usually lead to profits

Be aware the trading advice you're absorbing, and the source. Russell Tate, Getty Images

There's a lot of advice out there that's too vague, or inaccurate, to make a trader consistent profits. Trading styles do vary, though, so some advice may just not be right for a day trader, but is good advice for an investor. Therefore, we'll focus on conventional trading "wisdumb" that is too vague to be useful to anyone.

Need an example? How about "You can't go broke taking profits." Yup, you can.

This quote, in isolation and without context—which is how it is often used—leads the listener to believe that if they just wait for each trade to be profitable, and then book a profit, they'll be a successful trader. Nope. Some trades, as soon as you get into them, will be a loser, and the loss will continue to mount. "You can't go broke taking profits" assumes there is always a profit to be made...there isn't. Also consider: you can take many small profits, but one big loss wipes then all out.

Such trading advice, in isolation, is almost always useless. It misdirects attention away from practices which make traders successful, mainly adhering to strict risk protocols, and following a trading plan...not just arbitrarily deciding to exit a trade because it is showing a profit. Trading is a balance of risk and reward. For more on this balance, see: Day Trade Better By Understanding Win Rate and Risk-Reward Ratios.

What about the oft quoted "Let profits run." Seems logical, yet it too is misleading. There is not enough information, yet (uninformed) people say it like they are offering you a gold chariot full of cash. Nope. Form a cross with your fingers and walk away. Or, better yet, start asking questions about their wisdumb.

How long do I let it run for? How do I know when profits are more likely to start declining than increasing? What if it is just trickling higher, do I keep holding it? What's the exit plan? At some point this profit needs to be converted to cash!

Again, trading is about following a set of steps which over many trades have proven themselves profitable. No successful trader's trading plan says "let profits run" as a rule. It is too general. It needs more details. Before every trade you should know why you are taking a trade, and how or under what conditions you will get out. There is no guessing; you hold the trade until a defined set of parameters develop which tell you to get out. This is the purpose of a day trading strategy; "let profits run" isn't a strategy.

Want to really lose money in hurry? Scour the internet for quick isolated quotes from traders. Sometimes funny, these quotes sound succinct, and the advice may be relevant to that trader, but one-liners aren't going to make you a better trader.

Forget Accumulating Wisdumb

Trading takes work, lots of work. First to build a strategy that works, then much more (continual) work to follow it (see Starting Out as a Day Trader? Here Are Your First Three Goals).

Don't be starved for little insights, plastered over the picture of a quirky cat or a nice landscape. But ask yourself, have these helped your trading? One comment or piece of advice, even if it is really good, is not going to help you become a better day trader.

Day trading requires mastery of a wide array of skills; none are likely innate, but rather must be learned and practiced. Even having all the best information won't make you a better trader. You still need to implement that knowledge, at the right time, under the right conditions, with proper risk controls and the proper position size

Final Word

The next time you hear a seemingly smart trading quip, question it, and the person saying it. Most people have absolutely no idea what it takes to trade successfully. Even if they do, a comment in isolation and without context is more likely to lead astray than offer a ray of insight.

Take the time to research a strategy, and start thinking for yourself. Practice day trading and find out what works best for you. Build a trading plan that is right for your personality, capital availability and the time you have to trade. Then stick to that plan. What you'll find is that to trade successfully you don't need anyone else's trading advice (except for possibly a mentor or a few select traders who help keep you on track).