There is a lot of conflicting advice in the forex market, making it difficult to know what is real and what is a myth. Both novice and veteran traders fall victim to myths, experiencing both frustration and trading losses when they do. This is why it is important for any forex trader to know the most common myths – so that they can avoid them.
Here are a few to get started.
The first one is that forex trading is a way to get rich quickly. It isn’t. A lot of new traders come into the forex market with exactly this mistaken idea. Some of the more unscrupulous players in the market encourage this, trying to get traders to risk everything on a few throws of the dice. However, successful traders are patient, taking the time to identify good opportunities. They also focus on managing risk, typically keeping the risk with any single trade at less than 3% of their total capital.
Guest post by Mihai Milea of XTB UK
Second, many people think that forex is all about short-term trading. There are certainly successful short-term traders, and high leverage has made short-term trading even more popular. However, currencies move in the long term because of fundamental factors, even if they are driven by technical ones in the short term. It is perfectly possible to trade these long-term trends and make good money – in fact, staying in positions for longer periods of time avoids the need to pay spreads over and over again.
Third, many people believe that they need to predict market movements to make money. In fact, most inexperienced traders pore over charts for hours and days trying to do this. Unfortunately, the human mind is wonderful at spotting patterns where none exist, and this can often lead to unconscious biases that affect trading behavior. Traders should always look at real market movements when making trades – and if they do try to predict the market, they should wait for a movement to confirm that the prediction is correct.
Finally, complex strategies are not better, no matter what anyone says. Traders often start using a simple strategy, and then become dissatisfied with what they think are small returns. They then think that they can add extra twists to their system to increase their returns. All this does in most cases is make trading more confusing, leading to more mistakes and losses. On the other hand, using a simple approach, such as following trending markets or trading in channels, is easier to master and still can deliver good profits. Remember that forex trading is not about winning every trade – it’s about making more on your winning trades than you lose on your bad ones. Being disciplined and using a simple strategy is more likely to deliver this result.
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