Top Three Myths Of Trading

Trading Is Easy:
Most people come into this business with the idea that trading for a living is easy. Well if you were to ask anyone who has traded for any length of time, they would be the first to tell you that trading is one of the hardest ways to make an "easy" buck.
Years ago the statistics were that 90% of people who try their hand at trading lose all of their money within the first year. I think now the statistics are a little bit better.. Now it's about 88% who lose their money! Trading is not easy but it can be done with hard work and discipline.

Keep Your Protective Stops Very Tight:
We are all told to use a protective stops when we put on a trade. Most people who do use stops place their stops very close to their entry point because they don't want to lose a great deal of money. They think they are protecting themselves. Well let me tell you that there is good news and bad news about using tight stops. The good news is if you get stopped out, it will be at a very small loss, the bad news is that you will get stopped out every time. I always use stops in my trading but I give markets room. Markets need room to breath. There is a great deal of noise in the market and if your stop is too close, just random noise will get you stopped out. A great way to place a stop is based on volatility. Use some percentage of the average true range. I like to use anywhere from one to three ATR's depending on the type of trade I am doing. Average true range will adapt to the current market's volatility giving you the proper stop. So the next time you decide to use a very tight stop because you think you are protecting yourself think again because you are actually hurting yourself.

Paper Trading Is The Same as Real Time Trading:
We are all told to paper trade. People say if you can do well paper trading you will do well when it comes to real time trading. Well if that were true, we would all be rich. I think everyone makes money paper trading but when it comes time to risk actual dollars in the market we lose money. Why is that? Well I like to think of it this way. If I placed a 30 foot steel beam on the ground and asked you to walk across it, most of us can do that with no problem. Now suppose I placed that same thirty foot beam across the roof of two tall apartment buildings would you be able to walk across it now? I say most likely no. It's the same steel beam but something new has happened. Fear is now in your mind and that will make you react in an entirely different manner. Well it's the same thing with trading. There is no fear when it comes to paper trading but once we are risking real money, fear and greed will enter your mind causing you to react differently than when you were paper trading. Don't get me wrong, paper trading does have its place and can help with the mechanics of trading and placing orders but never think just because you made money paper trading you will have the same results when it comes to real time trading.