The access to a wealth of trading information via the internet is a precious resource. However, like any information found online, there are bound to be differences of opinion. Unfortunately, myths and rumors are touted as absolute truth. This reality also has a place in the stock trading world. There are several common myths about trading stocks that are just not true.
Trading Stocks Is Just Like Gambling
Image via Flickr by Lisa Brewster
This is one of the biggest myths regarding the stock market. While there is money involved and some risk of loss, the similarities end there. When it comes to the stock market, you are using some speculation and risk calculation to determine the best buys, but the overall rules are different. For example, if you lose a hand of blackjack, your bet is taken away completely. If a stock you buy performs poorly, you can still cut your losses. Imagine losing that hand of blackjack, but the dealer gives you back 80 percent of your bet every time you lose.
You Have to Be Rich to Trade Stocks
One of the biggest myths is that you have to invest a significant amount of capital to earn any real money in the stock market. Many believe that you’re wasting your time without investing several thousand dollars into a trading account. However, there are a few ways that this myth couldn’t be further from the truth.
One option is to trade penny stocks, or stocks valued at less than $5 per share. These can be a great approach for new traders wondering how to make money from trading stocks. The lower values allow new traders to practice stop-loss practices without investing an incredible amount of money. However, It should be noted that you shouldn’t expect your share to double in value easily just because of its low initial value.
What Goes up Must Come Down
Thankfully, in the world of stock trading, Newton’s laws of physics do not always apply. Just because a stock rises to record-breaking highs, doesn’t mean that it is moments away from an equal and opposite reaction. There are several examples throughout history of stock prices continuing to climb to high values and staying there. One modern day example is Amazon, which has just about doubled over the past year and shows no signs of slowing down.
Popular Brands That Have Tanked Are Bound to Go Back Up
A brand’s popularity is not always a key determiner of whether it will return to its former market glory. There are many factors to consider, like new competition in the space, unfavorable upper-management changes, or even a general drop-off in the product’s popularity. For example, GoPro once had a substantial price of over $50 but has since dropped to below $10 and stayed there. Remember that just because something is a household name doesn’t mean it’s a great stock to buy.
It’s important to understand the rules of the stock market and how it works. This will help you find the truth about trading and filter out the myths and misinformation found online. Doing plenty of research is vital for anyone who wants to have success by trading stocks.
Disclaimer: This content does not necessarily represent the views of IWB.