The biggest pitfall in trading is often overconfidence.


The biggest trap is having baseless confidence in oneself!

The greatest pitfall is constantly learning new technologies and continually conversing with successful individuals, hoping to glean some profitable techniques for oneself. Every successful person has their methods ingrained in their very being, intertwined with their life experiences, personality, habits, and physical condition. In trading, there's only one commonality: minimize losses when losing, and maximize gains when winning. Note, the losses mentioned here are not paper losses, and the gains are not paper gains; they refer to the actual amount after closing positions. This statement deserves deep contemplation.

Another pitfall in trading is the firm belief that one will eventually make money. Transitioning from a loss-maker to a consistently profitable expert is not due to how long you study the technique, nor is it due to a deeper understanding of the market. True winners will certainly agree with this statement: this turning point must be something beyond trading. For example, your wife wants a divorce, or your child graduates from kindergarten to primary school, and you still have achieved nothing. Or you gave up trading and worked as a truck driver for a year. Or when you reunite with old classmates and find that your Alipay balance is still less than a KTV hostess. The change in mindset and maturity is the inevitable factor that transforms a loser into a winner. A person who loves learning will understand the basic methods of trading within the first three months. The remaining time is merely finding the most suitable method for oneself. Do not set too high expectations; transition from small losses to no losses, and then to slow profitability. Manage your funds well: set limits on monthly losses, limits on losses per item, and maximum losses per trade. Once these calculations are made, trading is much like doing business. Successful business people have the capability to manage uncertainties. Take, for example, the fruit business. Initially, you buy apples from farmers at a seemingly cheap price and plan to drive them from Anhui to wholesale them in Zhejiang. Your simple idea is to sell quickly with a small profit. However, in reality, you may face issues:

1. How to select and bargain for the fruits from the farmers?

2. What if the traffic police catch you for overloading during the drive?

3. Why are there no buyers even though my price is lower at the wholesale market?

4. The apples are rotting, and I still have half left. Should I store them in someone else's cold storage to sell them slowly?

5. Someone wants to buy my apples at a low price. Should I sell them at a loss and quit? This is entrepreneurship, similar to trading; managing uncertainties requires understanding all potential solutions. Some solutions are not just techniques that can be learned quickly; they require time and experience. Why can others sell their apples so cheaply without losing money? Yes, they are selling at a loss but plan to recover in the next transaction. Do you have the courage to sell at a loss? If yes, can you make it back next time? If not, then the apples may rot, and you’ll end up eating them yourself.

02 Trading is an exchange between oneself and the external world.

One needs to follow the external changes. If you can keep up, you gain from the external world; if not, the external world takes from you. When your rhythm resonates with the external world, you benefit. When it diverges, the external world benefits from you. Therefore, traders need to understand how they change, how the external world changes, and how to keep up with these changes. Each link in this process presents numerous challenges and pitfalls. Limited by one's cognitive levels, before achieving success, it’s hard to know which pitfalls are true because if it is indeed a pitfall, one would avoid it. Only after experiencing it can one recognize it as a pitfall; otherwise, you might feel you’re walking on a smooth path.

Just like when reviewing the past trends in the market, everything seems clear; looking at future trends, everything is unclear. Here, I present a simple judgment method:

If the thinking, focus, and pursuit of the masses point to a path, it is highly likely a pitfall.

If you think like the masses, you might fall into the pit. Your narrow-mindedness and stubbornness can blind you to the truth and hinder you from adapting to external changes, which is the greatest pitfall and something that successful traders often grasp at the last stage of their journey. How does the external world change? Nature moves in waves, with fluctuations both big and small. Major and minor fluctuations are relative to one’s ability. Small fluctuations can be influenced, while big ones represent objective, uncontrollable forces. Major, objective fluctuations drive events, which in turn drive human expectations, leading to financial competition and price fluctuations, ultimately reflected in market charts. This sequence—fluctuations, events, expectations, competition, market—is how the market operates. The masses' narrow-mindedness shows in only seeing individual trees but not the forest, isolating and severing every link.

“Technical analysis is useless, fundamental analysis is useless, philosophy is useless.”

Being content with understanding one link and dismissing exploration of others is a sign of narrow-mindedness. The key to progress is not about comprehending “how the market changes” but rather stopping oneself from understanding it. This reveals that the greatest pitfall lies within oneself; self-restricted narrow-mindedness is the biggest obstacle to progress. Therefore, constantly questioning oneself is essential. No matter how hard you worked to achieve an understanding, it needs to be re-evaluated in the face of facts. Few people dare to start over, just as few cut their paper losses decisively. Rebuilding logic from the ground up means past efforts go to waste, yet facing the uncertain future is necessary. The goal is to establish a complete, self-consistent logic that explains the market and trading. Only with correct logic can one foresee the future. Even with this logic, it’s still essential to remember: effectiveness matters more than logic. In the real world, success validates the methodology. If someone believes earning money is due to daily prayers, we should respect this logic if it truly works for them. The greatest pitfall lies in unwarranted self-confidence. Entering the market blindly, believing in one’s unproven ability to succeed, is common. Many, including my past self, believed "I think I can, so I surely can." In retrospect, it’s laughably naive. Now, I believe in a more grounded approach: "I think and strive towards possible success"—doing one’s best and leaving the rest to fate, seeking no perfection but a clear conscience.

For more related trading information, please contact CWG Ahai;


Risk Warning and Disclaimer

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.

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