Updated: June 26, 2020
A lot of Filipinos went into stock market trading when the PSEI started making consecutive record highs during the first quarter of 2013.
Moreover, forex trading also became a trend, as evident by the increased presence of foreign currency brokers in the country from the past year.
A little over a year after all the hype began, many are now holding on to losing positions in the stock market, or have already lost a significant amount of money in forex trading.
The reasons vary, but most of them are caused by the wrong notions about how trading stocks and currencies should be done.
Indeed, misinformation can be costly, and here are 5 myths that often cause traders to lose money in the financial markets.
Myth #1: You need to put in lots of money to be successful.
If you want to trade, make sure that you only put in money that you can afford to lose. However, that doesn’t mean you have to put in a significant amount, even if you can afford it.
If you’re just a newbie, a starting balance of P25,000 or around $500 is enough. This amount will limit the positions you can take, which in return will help you avoid reckless buying and force you to be more cautious in entering orders.
Myth #2: Trading is just a game of chance.
If you think that trading is like gambling, then it might be better to just take your money to the casino and play there.
Successful trading requires proper skills, discipline and thorough analysis of the market. If you’re buying stocks based on intuition and gossip rather than facts, then you will lose money.
Myth #3: You need to be intelligent to be a successful trader.
Academic intelligence brings an advantage, but it is certainly not a requirement if you want to be successful at trading.
This means you don’t have to just sit and wait for tips from so-called experts on what to buy and to sell. You can actually learn how to analyze the market and make your own trading decisions.
Myth #4: It’s time consuming to be a successful trader.
This is another reason why a lot of people simply resort to popular advice when it comes to their trading decisions, which unfortunately often turn into a case of following the Pied Piper.
Trading does require time for study and analysis, but it’s never long enough that you’ll need to sit in front of your computer all day. An hour or two each day is all that you’d normally need to make a sound analysis of the market.
Myth #5: Technical and fundamental analysis is all you need.
The equity and currency markets are beasts that will have no second thoughts on eating you alive. It’s not enough that you know their patterns, characteristics and behavior – but more importantly, you should go inside the den equipped with the proper mindset.
You will lose most of your trades, especially in forex, but why do some people remain profitable over many years? The answer is not because of their analytical skills, but in their money management.
By having the right mindset and staying in control of both their fear and greed, they are able to minimize their losses and maximize their winnings – making them net positive in the long run.