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Common Knowledge is a Trading Trap


It is no secret that trading can be just as risky as it can be profitable. Many amateur traders dive into it without a proper plan or strategy in place, which costs them lots of money. But an even bigger mistake they can make is blindly trusting common knowledge and thinking that it is enough to ensure profitable trades. In this article, we will discuss what common knowledge in trading is, how it can be detrimental to traders, the most frequent traps traders fall into, and tips for avoiding trading traps.

Key Takeaways

Traders can avoid these traps by paying more attention to the current market conditions, having a detailed risk management plan, not relying on their predictions alone, and being flexible with their trading strategy.

What is Common Knowledge?

To put it simply, all the information new traders learn before starting trading is considered common knowledge. This includes various strategies, patterns, indicators, and other tips and tricks you can usually pick up from various courses and guides for beginners. This information is important, there is no denying that. But oftentimes amateur traders accept it as an indisputable fact without realizing that nothing is definite in trading and these patterns and strategies they rely on to predict future price movements don’t really guarantee that the market is going to move in their favor. But why this happens is what we are going to look into next.

How can Common Knowledge be a Trading Trap?

There are multiple reasons common knowledge can become a trading trap. As a rule, common knowledge relies heavily on the idea that market movements can be predicted. But in reality, it is not true. The thing is, it is mainly used by individual traders that have a very limited amount of money to trade. So their trading decisions do not really affect the movement of the market. But what does affect the market is the decisions of big financial institutions with enormous amounts of capital to spare. They are the ones really controlling the movement of asset prices, and no common knowledge can help you really predict their next move.

Another reason is that trading is essentially an opposition between buyers and traders, who try to benefit from the same market conditions. If one party wins, the other is going to lose. They use the same strategies and tools, watch for the same patterns; yet, this common knowledge helps one party and traps the other.

This shows that a trader’s success can’t be attributed to their ability to apply common knowledge in practice. Rather, it depends on other factors and behaviors that a lot of traders overlook while making their decisions.

Common Mistakes and Traps in Trading

Tips for Avoiding Trading Traps

Here are some tips for how you can avoid these trading mistakes and traps:

Bottom Line

Common knowledge can help amateur traders understand the basics of trading, but it isn’t a good idea to rely solely on what you learned from your beginner’s course. Make sure to pay attention to how the market actually moves instead of sticking to your predictions, have a good risk management strategy in place, and you can avoid the most common trading traps and mistakes.

#source


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