How to Identify and Avoid the Most Common Trading Myths

There's a quote I come back to a lot, attributed to Mark Twain: "It's not what you don't know that hurts you. It's what you know for certain that just ain't so."

Trading is full of things that just ain't so. Beliefs that get passed around as gospel — on social media, in trading forums, in YouTube comments — that sound logical on the surface but are actively costing traders money. After 30 years in markets, I've heard most of them. Some of them I believed early in my career. A few of them I had to lose money to stop believing.

This isn't a list of obscure edge cases. These are the myths I see every week — in the questions I get from traders at all levels, from day trading beginners to people who've been active for years. Let's go through them.

I know a trader — experienced, well-known in certain circles — whose trading room is one entire wall of screens. When he first showed it to me I laughed. Not rudely, but genuinely. Because at the time I was working on a laptop.

Here's the thing: he still drags everything down to one screen to actually trade it. All those screens feeding him data, all those alerts flashing, all that information — and when it's time to make a decision, he's looking at one thing.

I can only really trade two assets simultaneously in any meaningful way. Longer-term or swing positions I can hold more of — you put them on, you check in periodically, you move on. But active, real-time trading? I'm operating on one screen. Maybe two.

More screens is a cool factor. It looks the part. It makes you feel like you have an edge because you're consuming more data. But data isn't insight. More information without a framework for processing it doesn't improve decisions — it creates paralysis. You don't need more screens. You need a better process for the screen you have.

This is the dangerous one. Jonathan Swift wrote something I'll paraphrase: "You can't reason a person out of an opinion they didn't develop through reason in the first place." Risk management is the version of that in trading.

Most traders think they're managing their risk because they've set a stop. They know where they're getting out if the trade goes wrong. That feels like a plan. It isn't — not a complete one.

Stops can fail. Power goes out. Systems go down. A market gaps through your stop level and you're filled at a worse price than you intended. The platform documentation you signed when you opened your account almost certainly includes force majeure language — acts of God that absolve the broker of responsibility for what happens to your position. I'm not saying this to scare anyone. I'm saying this because truly managing your risk means not relying on any single mechanism to protect you.

Real risk management, in my view, is done by one thing primarily: the size of your position. Before a stop, before a target, before any technical setup — the size of your position is the first and most powerful risk management tool available. I covered the specifics of position sizing in a separate piece in this series. But the myth I want to bust here is the idea that setting a stop is the same as managing risk. It's part of it. It's not all of it.

I've seen charts that look like someone spilled a bowl of spaghetti on a price graph. Six moving averages, two oscillators, Bollinger Bands, volume bars, and a partridge in a pear tree.

Here's what all those indicators actually produce: paralysis by analysis. And there's a specific version of this that's particularly damaging — the requirement that every indicator line up before you'll take a trade. If you need seven things to all point the same direction simultaneously, you're going to take very few trades. And when you finally take one, you'll have so much confirmation bias built up that you'll hold it past your stop because surely it can't fail with all of that alignment.

The word matters here. Indicators indicate. They don't confirm. You need a separate process — a different overlay, a structural check — that confirms whether the indication is worth acting on. An indicator pointing in a direction is the beginning of a trade idea. It's not the trade.

My practical suggestion: if you're running a lot of indicators, go back through six months of your trade history. Look at every trade that worked. Identify which two or three indicators were pointing in the right direction on every single one of those working trades. Then remove everything else. You don't need a wall of indicators. You need the right two or three — and a confirmation process that's separate from all of them.

This one sounds like wisdom. It gets repeated constantly. And it causes traders to make a specific and very costly mistake.

The myth: once a trade is in profit, you should always take some off the table to guarantee a win. Never let a winner become a loser.

Here's the problem. If you take profits too early — before the trade has reached a meaningful target — you're chopping the upside off your winners while your losers continue to run to full stops. Over time, that compresses your money factor. Your average win gets smaller. Your average loss stays the same. The math gets harder.

My rule: never reduce risk, only increase it. The only action that should ever reduce your position is hitting a pre-defined target. Not fear. Not a feeling that the trade has gone "far enough." Not the fact that it's been a few days and you want to lock in something.

What you should do instead of taking profits early is trail your stop. As the trade moves in your favor, move the stop up (or down, for short positions) to protect a portion of the gain — while leaving the rest of the position room to reach its target. That way, if the trade reverses sharply, you exit with a partial gain rather than a full loss. But if it continues, you stay in and let the target do its job.

A trade that goes from a full loss to a three-quarter loss because you tightened your stop should go in your win column emotionally. You did the right thing. The process worked. Any time you reduce the size of a loss — even if the trade still loses — that is progress. Over time, reducing average losses while keeping targets intact is how you build a sustainable edge.

This is the myth that traps the most traders, and it's worth spending real time on.

Win rate and profitability are not the same thing. You can have an 80% win rate and be losing money. You can have a 40% win rate and be highly profitable. The number that actually determines profitability is what I call the money factor — and some platforms call it the profit factor. Here's how it works:

Money factor = average win amount ÷ average loss amount.

If your average win is $1.50 and your average loss is $1.00, your money factor is 1.50. That means for every dollar you lose, you make $1.50 when you win. With that money factor, you can be profitable winning as little as 40% of your trades.

Now flip it. If your average win is $0.30 and your average loss is $1.00, your money factor is 0.30. You need to win roughly 77% of your trades just to break even. That's the trap a lot of traders fall into — they're taking small wins quickly and holding losers too long, generating a high win rate that still adds up to a net loss.

This is particularly relevant in options trading, where selling out-of-the-money contracts can produce very high win rates through theta decay — until a volatile event hits and one loss wipes out months of small gains. The same dynamic applies in day trading when traders scalp for small profits but hold losers hoping they'll come back.

Calculate your own money factor. If you don't have a trading journal that does this automatically, create one. Knowing this number is more important than knowing your win rate. It tells you exactly what you need to fix: win more often, win more per trade, or lose less per trade. Pick one and work on it.

I hear this one in two contexts. From traders who tried technical analysis, found it didn't work for them, and concluded it doesn't work at all. And from fundamentals-focused investors who dismiss chart-based analysis as pattern recognition in noise.

My answer to both: technical analysis works when it's used correctly, applied to the right timeframes, and combined with a confirmation process — not when it's used as a standalone trigger. I've built my entire trading framework on technical analysis. Double bottoms, head and shoulders patterns, trend lines, rotation zones, support and resistance levels — all of it. After 30 years, I'm still here, still trading, still teaching it. It works.

What doesn't work is using technical analysis as a shortcut. Looking at a chart, drawing a trend line, and placing a trade because the line says to — without a defined stop, without a target, without a position sizing framework — is not technical analysis. It's approximation. And approximation doesn't work in markets.

The other thing I'd say: technical analysis is particularly powerful in active trading and short selling contexts, where you're looking for short-term directional moves. A fundamentals investor buying a stock to hold for five years doesn't need a precise entry. An active trader or day trader who needs a specific entry, a stop, and a target — and needs to be right about timing, not just direction — benefits enormously from technical structure. That's where technical analysis pays its way most clearly.

This isn't stated as a myth usually. It shows up as behavior instead.

It looks like this: you're down on the day. You've lost a few hundred dollars, or a few thousand, depending on your account size. You're still in front of the screen. You're still placing trades. And the goal of those trades has subtly shifted from "execute my process" to "get back to flat."

That shift is one of the most dangerous things that happens in day trading. The moment your objective changes from following your framework to recovering a specific dollar amount, your decision making is compromised. You're no longer evaluating setups on their merits. You're evaluating them on how much they might help you recover — which means you're taking trades you wouldn't otherwise take, sizing into positions more aggressively than your framework allows, and holding losers longer because you need them to come back.

The solution isn't discipline in the abstract. It's process. When every decision is made before the trading session opens — position sizes, stop levels, maximum trades per day, maximum daily loss — there's no real-time decision to make about whether to keep going. The plan has already made that decision. You follow the plan. When the plan's conditions are met, you stop. You don't get to override it because you're down $600 and you think you can make it back before the close.

I'll say this clearly: following your rules on a losing day and being at peace with the loss is one of the most important skills in trading. It sounds passive. It's actually hard. And it's the thing that separates traders who can evaluate their process objectively from traders who are always chasing their last loss.

People think this is exciting work. And parts of it are. But the actual work — the work that determines whether you succeed over a long career — is boring.

It's reviewing your trade history and calculating your money factor. It's identifying which indicators or patterns were present on every trade that worked. It's maintaining a journal that logs not just what you traded but what your state of mind was, whether you followed your rules, and what you would do differently. It's doing that review consistently, every week, whether you had a good week or a bad one.

Here's a useful frame: your process is your job. Your wins and losses are the output. You can only directly control the process.

If your process is sound and you're following it consistently, then a losing week is just a sample from the distribution of outcomes your process produces. You go back and look at the data. You make small adjustments if the data supports it. You don't blow up your system because you had a bad week. And you don't get overconfident because you had a great one.

This is also why I tell traders — especially those just starting with a low cost brokerage account and building their first active trading framework — to keep position sizes small early on. Not because small positions can't build real accounts over time, but because the early phase is about developing a process you can trust. You can't evaluate a process you're constantly overriding with emotional decisions. Trade small enough that the dollar outcomes don't override your process, and do the boring work of reviewing and refining it.

Setup quality matters. Of course it does. But I've seen excellent setups blown by poor execution, and I've seen mediocre setups handled so well that they produced solid results. The difference, almost always, was the mental state of the trader.

Here's my practical suggestion, and I know it sounds simple: wake up 30 minutes earlier than you currently do and don't look at a screen for those 30 minutes.

Have your coffee. Sit outside if you can. Read something that has nothing to do with markets. I read actual books — history, biography, whatever I'm working through. I make an espresso, I sit on my patio, and for the first 20 minutes of the day I'm not thinking about positions or setups or what happened in overnight trading. I'm just a person having a coffee.

What that does — and I've been doing this for years — is create a mental separation between who I am and what the market is doing. It sounds abstract until you experience what it's like to trade from a genuinely calm starting point versus jumping straight from sleep to screens to positions. The difference in decision quality is real.

The other piece is getting ready. I work from home. I still get dressed, still have a routine, still treat the trading day as a professional environment — because I've found, and many traders I respect have found, that the physical routine of getting ready signals something to your brain about the standard of thinking required. This isn't woo. It's just what I observe in myself and in the traders I've watched develop over the years.

Journal whether you got ready. Journal whether you slept enough. Journal your mental state before you placed your first trade of the day. Over enough data points, patterns will emerge. And those patterns are as actionable as any chart pattern you'll find on a day trading platform.