Trade with Knowledge – Why is Education Essential to Online Trading?

In 2020, when thousands of people were restricted to their homes due to Covid lockdowns, the numbers of people taking up online trading skyrocketed. By September in the USA, the proportion of daily trades made by retail traders reached an unheard-of 15%. Statistics show, however, that over seventy percent of them ended up by losing money.

Why was their market performance so bad? There are a variety of reasons but one stands out as prominent. In a 2014 study, it was found that financial literacy among the Americans, but also the Dutch, Germans, Australians, and Japanese, was surprisingly low. Only one third of interviewees could correctly answer three basic financial literacy questions. The researchers went on to add that, “Even though actual financial literacy levels are low, respondents are generally rather confident of their financial knowledge”.

This is a perfect illustration of the saying: “In the eyes of a fool, there’s always a straight road ahead”. When someone hasn’t begun to gather knowledge about a subject, it seems to him there is no knowledge to gain, that he already knows all there is to know. This problem is particularly potent in our technocentric times when, in place of acquiring knowledge through book reading, we have social media posts and “two-minute-read” articles to turn to. Unfortunately, these tend to give people the impression that no subject contains all that much depth, and that everything can be encapsulated, summarized, and condensed into a few key phrases.

There was a girl who wanted to perform in the school concert. She didn’t know how to play any instrument, but she had once seen somebody playing the harmonica, which seemed so easy as not to require any training. After assuring the drama teacher of her prowess on the instrument, her moment in the spotlight was booked. On the big night, her time came to go on stage, which she did as a thick silence settled. She blew lustily on the harmonica, running her lips from the high notes over to the low ones, and then back again, and then darted off stage.

More of us than we realize resemble this young lady in our approach to financial trading. It may be that – thanks to modern trading platforms – it’s fairly straightforward to execute trades online, and it may be a matter of minutes to open an online trading account, but that doesn’t mean there’s no wisdom or skill behind this activity. You can prove this to yourself by meeting one of the truly knowledgeable traders out there.

Education is the backbone of financial trading. Trading without it, there’s a solid argument to put you into the category of online gamblers since you’re merely putting your money down on a contingency. Through a process of self-training, however, you can come to appreciate the forces that keep the markets humming and then translate your knowledge into trading success.

The Trader’s Image

If there ever was a time when appearances seem to matter more than reality, it’s now. Thousands of people around the world see nothing unusual in taking financial advice from celebrity “influencers” who have yet to attend first-year economics classes. In addition, both mainstream and social media keep on plugging the idea that growing wealthy through well-aimed cryptocurrency purchases is within the bounds of what the average person should expect.

The infiltration of false ideas about acquiring wealth into social media channels has bound them up with the requirements for earning social status. There are certain online communities that routinely ostracize members who express doubt about their financial ethos, even when it’s backed up with reasonable arguments. The result is that, in many people’s minds, the surest way to acquiring wealth has nothing to do with diligent study, but plenty to do with group membership, the repetition of buzzwords, and faith in the infallible guidance of “gurus”.

It happens to be true that online trading opens up exciting financial opportunities, but don’t do it because your friends are doing it. Unless you have money to burn, it’s not worth risking your hard-earned cash just so you can share stories about the “deals” you made with your friends. Here’s the reason: If you’re not approaching it with the same seriousness you would take to starting your own business – where there’s only question to address: Can I make it work? – you are likely to lose focus and fail. The financial legends of our times didn’t achieve what they did through dabbling in finance in their free time. In the great majority of cases, success is preceded by years of concerted effort.

The idea of putting in hard work is one that our generation has difficulty digesting. Indeed, some crypto communities make fun of those who believe in it. This should be ignored. No matter what people say, the facts remain the same: Hard work is a prerequisite to success in almost all cases.

I Must Win

There’s another dangerous mindset fostered by hype-driven social media channels, and it’s one more characteristic of men than women. Researchers have found that, in financial matters, males tend to exhibit more overconfidence than females. The results of this phenomenon have been observed by academics. In a group of 35,000 people studied between February 1991 and January 1997, it was found that men traded as much as 45% more often than women. The researchers concluded that the men’s natural sense of confidence had spurred them on to trade much more frequently than the women did. It also appeared that the males had suffered the consequences of their overtrading in the form of more losing trades.

If you were facing up against Roger Federer in a tennis match and won the first point, wouldn’t it be hasty to conclude that you’re bound to crush him from here on? You may have punched the “Deal” button on your online trading platform and ended up with positive earnings, but this doesn’t mean you are now the master of the markets who can do no wrong. Professional traders keep their eyes on one goal: to succeed in the long term. They know and accept that this will entail losing in many individual trades while the process is working itself out. They don’t harbor illusions of their superiority over all others.

Some people psychologically relive their online trading experiences until they’re driven to go back and get “revenge” by recovering their losses. They walk around fidgety and irritable, fantasizing about “getting even” with the markets. They might be interested to know that this is one of the symptoms by which gambling addiction is diagnosed. Rather than presenting themselves to their friends as savvy, capable financial traders, they should, perhaps, check themselves into an addiction center.

Opening My Business

For those who are serious about making the most of online trading, the way ahead is through education. This can be an organic and pleasant process. Read up on everything you find fascinating about the financial world. Let one thing lead to another. There’s no lack of fascinating and relevant material in the economic world to keep you busy for quite some time.

When you’re ready, move onto the topic of what moves the prices of different asset categories. Listen to financial analysts discuss whether the Middle East tensions are going to cause a hike in crude oil prices. Notice what they view as a significant factor, and also what they disregard or minimize. Be humble enough to take instruction from those who more knowledgeable than you.

And, when the time is right, sign up to an online trading brokerage with a robust education center. This can feed you succinct answers to your questions when they arise, or at least direct you to where they might be found. These platforms can also train you to use the tools of technical analysis in your trading, which can reveal the trends that are guiding your asset’s prices. Once you sign up, those tools will become available to you to use. They include, for instance, the ability to make candlestick charts and plot technical indicators upon them. All this has the power to give you real insight into market forces – as long as you apply yourself earnestly and consistently – and build you up, eventually, to the level of the professional traders.

Summing Up

Choose a trading platform that 1) is officially regulated, 2) offers a generous array of tradable instruments, and 3) features a good range of technical tools. One such brokerage is iFOREX, who have been operating in the industry for over 25 years, all the while enhancing their signature platform to meet the needs of modern traders. When you sign up with iFOREX, you enter into an environment permeated with the atmosphere of positivity in learning. Visit the iFOREX website to find out more.