One of the things that makes retail trading unique as a pastime, or even a career, is the degree of honesty and self-reflection it requires. There are many jobs that offer some consistent semblance of leeway when it comes to making mistakes and honing a skill set, but trading is not one of them. No trader can negotiate a raise with the markets or hope for the markets to recognize their hard work; if anyone is not careful with their expectations and risk management, even just one losing trade can be catastrophic. Hence, why truthfulness matters in the world of retail trading: it often spells the difference between passive income and financial ruin. With that in mind, let’s explore 3 lies traders should avoid today.

“My strategy doesn’t need stop losses”

Regardless of a trader’s win rate, every trustworthy strategy incorporates stop losses to some meaningful degree. This is because it is as near certain as statistically possible that unmitigated risk in trading will eventually have terrible consequences. Even if a strategy somehow achieved a win rate over 95% with consistent incremental gains, unchecked risk would still be present in every trade, resulting in a handful of losses that could easily erase all prior profits in a fraction of the time (I know this from personal experience). Stop losses, especially trailing ones, are thus an indispensable tool for traders when it comes to safeguarding against inevitable losses and making their wins count in the long run.

“I will compound my account so fast”

Building a large trading account is a long, gradual process that requires plenty of discipline and patience. Because of this, if a retail trader approaches entering and exiting positions through the lens of a get-rich-quick scheme, they are bound to become disappointed and discouraged, and likely lose money along the way due to over-leveraging and impulsive trading. Thus, it is important for traders to generate realistic expectations for themselves, and not take success for granted. Some ways to practice this include a) thoroughly backtesting any strategies of choice, b) avoiding trading out of financial desperation, and c) recognizing that your value as a person has nothing to do with your account’s performance.

“Fundamentals don’t really matter”

Technical analysis is a wonderful tool for every trader to have equipped, and there are myriad technical indicators worth exploring and adding to any strategy. Likewise, sentiment analysis is valuable as well, since anticipating buying and selling pressure is at the heart of trading as a discipline. However, even with these two crucial forms of analysis at our disposal, it must never be taken for granted that traders are buying and selling real securities.

In a new age of gamification and excessive speculation fueling price action volatility in the markets, it can become easy to believe, even subconsciously, that trading is reducible to a worldwide chart-reading game. Therefore, it’s possible for many traders to miss out on significant fundamental catalysts and opportune points of entry and exit, because it is easy to forget that we are trading in real markets that are shaped by concrete circumstances and events in our world. Thus, whether a trader is buying or selling stocks, currency pairs, or bonds, it is always wise to conduct fundamental analysis, whether that be monitoring macroeconomic data, business fundamentals, or other variables.

Key Takeaways

• Thoughtful risk management is essential to success as a retail trader.
• Building a trading account takes time and practice, so keep your expectations in check.
• Fundamental analysis still matters, even in an age of excessive speculation.