Popular Forex Trading Myths and Realities
Popular Forex Trading Myths and Realities
Forex is the largest marketplace in the world as it is the largest financial market. Financial markets react with the mass trader’s psychology.
This is why financial markets are full of rumors, news and myths.
Whatever how long you are trading in forex market, these rumors and myths are always around you.
These myths can lead a trader to unnecessary fear, greed, pride and excitement.
To keep your mind safe from these psychological impacts, you should know about these forex myths.
Some of the major myths are discussed below,
Forex is a quick way to get rich:
This is the most common myth in forex. Forex market allows a trader to trade for a very short term to long term, which is not so easy and available in other financial markets. Due to this specialty of forex market, most of the traders think that forex is the place to get rich in almost no time.
It is true that forex allows many advantages and opportunities that others markets don’t offer, but that doesn’t mean you have to trade too many times. Excessive trading can be dangerous as every trade carries equal amount of risk and opportunity.
Successful forex traders don’t aim to make a big profit in a short time and run away from the market. They build up the profit house brick by brick.
A trader should remind that forex gives us more opportunities than other financial markets but that doesn’t mean forex is the place to get rich quickly with little effort.
Forex is suitable for short term trading only:
This is another myth or misconception about forex market. A trader should not think that forex is suitable for short term trading only as it forex market won’t stop you from holding your positions for long term.
In fact, long-term trading is less risky and more profitable than short-term trading. In any financial markets including forex, price tends to follow the major trend most of the times. Thus, the price has a tendency to move in one direction for a long time.
If you can trade in the direction of price movement, then you can get healthy profits. On the other hand, short-term price movements are short-lived and not smooth enough to make a good amount of profit.
Forex market is rigged:
There is no tangible headquarter and regulatory authority for forex market. This is why many people think that forex is rigged or predetermined market. Many people even think that the whole forex market is a scam.
These are not true. Losing traders often blame the market as rigged or point a broker as a scam. Forex market is not rigged. Even the biggest bank in the world can’t manipulate the market for a single day. Forex is the largest marketplace in the world having hundreds of brokers.
This is so competitive business that if a broker is really involved with a major scam, then other competitors will take advantage over that broker. This might lead a broker to close the business.
It is true that some brokers do have minor scams. These scams are easy to find out and you can be on the safe side by knowing about these scams and avoiding them. There are some sites that publish scam reports of forex brokers and also rank forex brokers.
It is possible to trade with 100% accuracy:
This is a weird one. Only a fool can believe this way. Remember that, there is no certainty lies in financial markets. So, you can’t be right every time.
Losses will occur and you have to manage your profits and losses properly to be successful. It is not possible to achieve more than 70% accuracy in the long run whatever how expert analyst or trader you are.
News trading is an easy way to make money:
This is not that easy to make money by news trading in forex. It is true that news can impact on the price movement. Most of the times this price movement due to news impact is so rapid and short-lived that traders get trapped.
It is very hard to take a position or close a position when the news has just published. During these news sessions market fluctuates too much with low liquidity. In this time spread becomes higher, so it becomes risky.
One can take positions before news events and can wait for the news impact on price. Making a profit this way is not easy either, because sometimes price moves according to the news and sometimes price moves against the news.
More trading in more pairs gives better result:
Many traders generally think this way that if he/she makes one trade per day and gain 1%, then he/she would be able to gain 10% by making 10 trades a day.
This leads a trader to increase the risk by taking more and more positions to make big profits. In real, situation is different. It is better to avoid excessive trading in many pairs. It is better for a trader to trade in this pair which he/she understand better than other pairs.
Excluding expert scalpers, most of the cases market rewards that one who is patient and with the major trend. This is why patience is a profitable virtue in case of trading.
To make money, you have to predict the market movement:
This can be very dangerous in case of forex trading. Most of the traders have a tendency to predict the market moves and when his prediction fails, he becomes blind believing that the market will come in his favor soon. This makes him blind and as a result he violates his trading rules for the sake of his prediction.
Successful traders don’t try to predict they try to react to the market move and their trading strategy. To become successful you don’t have to know where the market will move.
All you have to know in which direction the market is moving and might continue to move for some more time. This can be identified easily by understanding the major trend.
Complex strategies work better than simple strategies:
This is another misconception of traders. They think this way because they start with simple strategies and fail to make money and then they start to think that they need to improve their simple strategy to make money.
This is why traders tend to add more and more rules which makes trading strategy complex and provide very little amount of trading signals. To make money by trading in financial markets a strategy is very important but it’s not necessary to have a complex or advanced trading strategy.
Any complete trading strategy is profitable if traded in a disciplined way. Trading strategy fails if it is incomplete, missing any important rule or if not traded in a disciplined way. Both simple and complex trading strategies are profitable. Simple trading strategies are easy to read, easy to develop and profitable.
On the other hand, complex trading strategies are profitable but complex, include too many rules, provide fewer signals and not flexible.
You can make money by following others signals or advice:
There are traders who think that simply following other signals or advice or trades he/she can make money easily. This is not true most of the cases. Real trading involves psychological barrier which resist a trader to trade in a disciplined way.
This is why it hard to follow others advice and rules properly. In fact, it is quite difficult to follow the own developed trading strategy in a disciplined way. All of these forex signals or advice are not that much reliable.
So, before following these signals or advices you should judge those by own analytical skills. Before trading in forex one should develop own trading strategy and then trade with it. It is your money so the decision should be yours.
You should be an expert economist to trade forex:
Economy drives the forex market. Economy reflects the major trend of the forex market. But it doesn’t mean that you have to be an expert economist. If you have economic knowledge then it is an advantage. However, you can still trade forex successfully without in-depth knowledge of economics.
Successful forex trading requires quick reaction, understanding market trend, money management and discipline. You can cover these attributes by using technical analysis.
There are many reputed analytical websites which include economic forecast and analysis. These websites can help you to understand economical aspects easily.
You need a large investment for forex trading:
There was a time when forex trading was allowed for only banks and large fund managers. That time has come to an end with advance internet and online trading concept. Now a day, you can open a forex trading account with as little as $25. As forex brokers allow high margin ratio, you can trade big size with a small investment.
But you should be careful about using high margin or leverage as it carries a high risk beside high profitability. Almost every forex broker offers demo accounts. You can open a demo account without any deposit.
Forex trading is easy:
This is a huge misconception and those who think this way end up with a loss. Forex trading requires good analytical skills, fast execution, proper money management and disciplined approach.
Without these skills, it is almost impossible to make a profit in the forex market.
You need to watch forex market whole day:
It is not necessary to watch the market whole day for forex trading. Forex brokers provide advanced platforms by which you can place advanced orders.
If price hits the placed order, then your orders will be executed automatically even if you are not online.
These misconceptions can make any trader confused or frustrated about forex trading. A trader should know these myths of forex trading so that he can keep himself away from these misconceptions.