Everyone has heard a story at one time or another of someone’s friend of their cousin’s roommate who “played the market” and hit it big. There are countless books written by successful traders who give general advice on how people can replicate the same success that they have achieved. Every day there’s news about movement on the stock market, and people murmur about how “someone, somewhere” must have made a killing. It can seem like there’s a fortune to be had if you just know the right rules or strategies. That idea couldn’t be further from the truth.
When people look for “secret stock market rules,” what they have in mind falls under the umbrella of “technical analysis.” Proponents of technical analysis claim there’s no need to look at a business’s financial statements, as all the necessary information is contained in its price history data. This data is to be interpreted with a myriad of techniques involving various indicators, “candlestick patterns” and market pseudo-psychology. Some proponents will claim that there’s no need to even know the actual price level or timeline: if you show them an unlabeled chart, they believe they can tell you if it’s going up or down.
“Technical analysis” is an example of confirmation bias: people pay attention only to results that confirm their beliefs and ignore the ones that are contradictory. Don’t fall for this costly trap.
Seminars, Mentors and Proprietary Trading
If you start looking around for trading advice, you’ll quickly stumble upon allegedly “once-in-a-lifetime” and “one-of-a-kind” seminars or mentorships that claim they will teach you to be financially independent through trading. Usually there’s an ex-trader or two that run the whole thing and they’ll provide all sorts of software and live mentorship to “help” you make millions in the stock market. They usually charge somewhere in the neighborhood of $3,000 to $5,000, sometimes more. The sales pitch will make it seem like that’s pocket change compared to the life-changing dough you’re about to pull down once you learn to look for the right technical analysis patterns.
You may also see job postings for entry-level proprietary trading positions. These are usually billed as work-training programs where they’ll teach you to trade full-time. All you have to do is put up $25,000 starting capital. They’ll be a little more up front about the risks involved, but still push the idea of endless piles of cash if you’re “disciplined” enough to stick to the program.
Both of these “opportunities” are outright scams. You will lose all of the money you paid, possibly more. The truth is that no one knows any special patterns that are foolproof determinants of which way a stock is going to trade tomorrow. Any such knowledge would be tantamount to knowing the future. Hedge fund managers who have studied the stock market for the better part of their lives struggle to beat the market. If there really were any such “strategy” for success, you can be sure they would be employing it for better returns than they’re currently reporting.
If you want to “play the market” and do some active trading, that’s okay. Just be clear with yourself that you’re essentially gambling and don’t use any more money than you would be comfortable taking to the casino.