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2024/05
5 pitfalls to avoid for overcoming trading confusion
The bustling world is driven by profit, which is the reality every trader faces when entering the market. However, trading is not a place where effort guarantees rewards.
The trading market is more complex; it resembles a vast maze challenging for the average trader to navigate, often at a high cost. Those who achieve stable profits and success are as rare as phoenix feathers and unicorn horns.
1. Over-focusing on Fundamental Analysis
Paying attention to fundamental analysis is correct, but relying on it solely as your trading basis without sufficient understanding is a big mistake, whether in the stock, futures, or forex markets. The allure of fundamental analysis lies in its ability to explain all reasons for price fluctuations convincingly.
You may have made significant profits based on fundamental analysis, but such luck won’t be consistent. Trading and research are different: one seeks knowledge and reasons, the other seeks profit and opportunities. Fundamental analysis is limited to the trader’s limited knowledge. Over 90% of traders have realized that individual investors cannot fully comprehend the fundamentals.
Falling into this maze can lead to irreparable losses. Traders obsessed with fundamental analysis should quickly correct their path, as the market’s reactions encapsulate everything.
2. Obsession with Indicators
Indicators should only be used as references, which isn’t hard to discern. If success could be achieved solely through an indicator, traders would soon dismantle the market, and its ecological balance would never be broken.
This balance corresponds to the 80-20 rule in success theory. Different indicators often contradict each other; one might signal to buy while another signal to sell, causing traders great confusion.
The main reason many traders are obsessed with indicators is that historical charts often validate their usefulness. However, when tested with real money, the results are usually mixed, leading to more losses than gains. This is because indicators follow prices; they do not determine prices. In trading, price is paramount.
3. Blind Faith in Market Gurus
For beginners, blind faith in market gurus can be a mental crutch during the early stages of trading. While the focus of traders is the market, these gurus address the majority of traders. Experienced traders gradually realize this, while new traders need help to escape this trap.
Beginners still obsessed with market gurus should wake up early. Instead of being led by these people’s opinions, it’s better to learn from an experienced trader, especially those seasoned veterans who are often low-key and reticent but understand the essence of trading.
4. Enthusiasm for Short-term Trading
Many investors believe short-term trading is profitable because their winning trades are short-term and losing trades are long-term.
Short-term trading is criticized for its quick profits and suitability for beginners, with some traders viewing the market as an ATM full of opportunities for those skilled enough to cash in.
Confidence is reasonable, but we must analyze the market carefully and allocate our limited funds wisely. During prolonged market consolidation, genuine short-term opportunities are rare. Occasional lucky successes often come at a high cost. Therefore, even short-term trades require a trading plan and preparation to seize opportunities.
Traders misrecognized to recognize the pitfalls of short-term trading to avoid unnecessary detours. Even those who succeed in short-term trading often do so by chance. For most investors, without sufficient understanding and knowledge of trading, an obsession with short-term trading offers no absolute path forward.
5. Belief in Secret Trading Formulas
Legendary trading stories influence many traders before entering the market, such as someone multiplying their wealth several times a year or getting rich overnight. These stories create the illusion that success can be simple and that there is a shortcut to financial freedom.
Many traders, even those with stable profits, occasionally ponder whether their annual 20-30% returns are too modest, chasing higher profits and overlooking the most critical aspect of trading: risk control.
They believe there is a better method and invest more effort and cost to find it. However, the trading market has no secret formula for instant success. Long-term profitability relies on a robust trading system and continuous improvement in risk management.
In summary, avoiding these five pitfalls can help traders navigate the complexities of the market and move toward consistent success.
