The Bias That Holds Back Aspiring Traders
February 24, 2021
Aspiring traders face many challenges. After all, the barriers to entry are quite high and are not limited to financial matters (in fact, this is often low, as minimum initial deposits can be just a few hundred euros).
Among the many obstacles they encounter, prejudices stand out. Not the prejudices the outside world may have towards them, but the prejudices they themselves hold about trading. That's right, the complex set of beliefs about trading that they form before diving into the fray can prove to be truly limiting.
Among all the prejudices, one in particular can cause truly negative consequences. We discuss it in this article.
An Image Problem
The issue revolves around the image that trading has outside the market context. In other words, how it is perceived and interpreted by those unfamiliar with the subject. An image that, it must be said, often does not correspond to reality. Even today, many prejudices about trading persist. Not necessarily negative, to be clear. In fact, some are positive... But equally harmful.
Now, these prejudices also "afflict" aspiring traders. After all, before becoming interested in speculative investing, everyone feeds on the collective imagination that characterizes common sense.
It's not easy to shake off these prejudices, partly because they generally evolve and become entrenched convictions. Thus, for many, the only opportunity to cleanse their perceptions and opinions of falsehoods and misunderstandings is precisely their entry into the market. This, as is evident, increases the risk of paying the price for awareness of what trading really is.
A Prejudice That Compromises Hopes for Success
But what specific prejudice are we talking about? Well, as already mentioned, it is a positive prejudice that puts trading in a good light and, in fact, pushes many novices to try the path of speculative investing.
Specifically, we are referring to the prejudice that online trading is within everyone's reach and under any condition. In short, that it is relatively easy to start investing and making money.
To be clear, from a certain point of view, it is. Firstly, because the economic barriers have been eliminated. Nowadays, just a few hundred euros are enough to start trading. Secondly, because software has become much easier to master. The credit, in this regard, goes mainly to Brokers, who in recent years have simplified interfaces.
The issue is different. Those who believe this prejudice, who embrace this (false) conviction, think that it is enough to learn a few little rules, memorize a basic trading strategy to replicate the profits of the more experienced.
Some brokers with a thick skin propagate this idea, as they have every interest in "pumping up" the accessibility of trading. The goal is, obviously, to increase sign-ups, to push more and more people to jump into the fray.
This is a minority, to be clear. The majority of brokers care about their users and try to reduce dropout rates. Also because the natural consequence for those who fall prey to this prejudice is precisely the definitive abandonment of any investment ambitions: they start with enthusiasm at a thousand, get burned, and leave the field with the will to never return. Often the first impression counts, and the first impression of this category of aspiring traders is almost always dramatic.
What to Do
Is there a solution? Is there a way to avoid falling prey to this prejudice? Actually, it's less simple than you might think, partly because many risk acting after having internalized, perhaps at a deep level, the conviction that online trading is a relatively simple activity. A good portion of aspiring traders have a dramatic tendency to underestimate the difficulties of the market, only to then experience firsthand that the road is arduous.
To be clear, everyone can become profitable traders. Provided, however, that they put in the effort and mental, intellectual, and psychological energy.
This is precisely the key to overcoming the prejudice: becoming aware of this commitment before making one's debut in the market, before activating an account. That is, during one's training path, if not before.
Obviously, the training path must meet certain requirements. In particular, it must be the right length. Some can skip certain steps if they have an educational background somehow related to economics, finance, and investments.
The training path, then, must be complete and specialized at the same time. The trader must be able to understand the market in its entirety, but sooner or later must choose a path, a road that leads them to delve into that market segment and that asset.
Now, the risk is studying as a self-taught learner, which is not exactly the wisest idea when the subject of study is a reality as complex as trading. The advice, therefore, is to choose a mentor and rely on them. Among other things, the mentor, if well-intentioned, will first try to cleanse the mind of prejudices, eliminating the problem at its root.
How to identify a mentor? Well, the advice is to look within the community of at least moderately successful traders. The mentor must obviously be a full-fledged trader who has achieved a certain success. However, they must also have training ambitions. After all, that is their task: to teach and transfer their knowledge.
Finally, another piece of advice: practice. Not on the real market, which would expose the still "immature" aspiring trader to significant risks. Rather, in demo accounts, which act as hyper-realistic simulations. Demo accounts are excellent tools for getting acquainted with the darker sides of the market.
