Dangerous trading myths which aren’t so dangerous
I’ve been receiving a series of emails from a person trying to get me to sign up for some product or tool or somesuch that’s supposed to point out good trades for you. I won’t mention the name of this particular offering because based on the emails I’m seeing I have serious questions about the person or people behind it. They are coming through as a series of Dangerous Myths. Needless to say, I haven’t found the arguements particularly compelling, and in at least one instance the case made against the myth seems to contradict the very concept of the product.
Let me run them down for you.
Dangerous Myth #1: You have to identify what kind of trader you are.
The email contends that by defining what kind of traders you are you put yourself in a box. I’m in general agreement that we shouldn’t get too caught up in labels (see Keeping Perspective – You’re Not “A Trader”). It tends to keep us from having the flexibility and desire to explore new things. Having said that, though, just about every trader does best within a certain niche (or set of them) because of how it aligns with her/his interests, way of thinking, risk tolerance, etc. Brett Steenbarger has discussed this subject at length in his writings.
Dangerous Myth #2: You must be able to identify patterns, waves, retracement levels, etc. to be a successful trader.
Coming from a signal generating product provider, this is about the most absurd thing I have heard. In the final analysis, trading is about patterns. Every trading methodology you will ever consider is based on them in one way or another. It boils down to ”if this, then (probably) that”. If GOOG is trading at 50% of book value you buy because it will probably move back to a more reasonable valuation. If Soybeans make a new 55-day high you buy because it will probably trend higher (Turtle system). If the market moves toward an area it traded heavily in before, it will probably keep going toward it (price distribution analysis). One way or another, unless one is trading completely randomly, there’s a pattern involved.
Dangerous Myth #3: You will benefit by paying a trading service and following their trading selections.
This is the one that blows my mind. The prior email said about the product in question that “It generates trading signals in real time so you can get in on the big market moves and ride them for all they are worth.” And yes, they are charging for it. So how is that not following a trading selection?
Blatant contradictions aside, I am definitely one to encourage folks to develop their own market analysis and trade selection abilities (discretionary or system oriented). To really become a strong trader with long-term staying power you have to do that.
Now, having said this, there is benefit to be had from following what someone else is doing. I’m not talking black-box type stuff here where someone just tells you where to buy and sell (though that can make sense too if the risk adjusted returns are good enough). What I’m referring to is the kind of trading service which lays out the full reasoning behind the trade decision-making so you can follow along with it. That sort of service can help you learn quite a bit – along with maybe making you a few pips and/or points in profits.
So far that’s it for the myths. I’ll keep you posted if any more land in my inbox. 
Struggling with support & resistance and knowing what the key market levels are? Check out the Price Distribution Analysis methods I use.
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