When something is as monumental as the forex market, it is bound to have some myths and misconceptions surrounding it. Moreover, in this age of the internet and online surfing, it has become easier than ever for any information to be spread everywhere swiftly, where people couldn’t care less about its authenticity most of the time.
The forex trading space has long been a major victim of this “false conceptions” malice as it is associated with several facts with no solid backing.
Here, we have listed the most common myths about forex trading to help you move beyond these distorted perceptions.
1. Using “uncommon” trading techniques can make you a successful trader
Trying to apply “unconventional trading methods” is one of the worst things you can do as a trader. Remember that trading is all about moving with the “market flow” and implementing simple strategies but with the best execution.
If you think that as maximum traders are using the basic price action techniques, what will be your edge over them in case you enact the same methods? The answer is that you should use the same, accepted, and tested techniques for the very reason that majority of the traders are relying on them. Know that in the forex trading sphere, the majority moves the market and you should never go against it unless you want to badly get squashed by its momentum.
Sadly, many novice traders go after one swindler to another, who promises them quick profits via unique trading strategies, to evade the learning and practicing process.
2. Trading plans and stop-loss orders are only for traders with very small capital
While this myth is quite common in trading circles, it’s entirely wrong from its deepest roots as capital management is essential in all cases – whether you have a $100 account, a $1000 account, or a hundreds/millions of dollar account. You must have heard some traders saying: “If I had a $50,000 account, I would have survived this trade,” or “If I get my hands on a large capital, I will succeed 100%.” Unfortunately, this very mindset suggests a huge problem.
If you don’t manage your capital, trade without stop-loss orders, and keep hanging on the losing trades without any sensible plan, you are doomed by all means even if you own a million-dollar account.
3. Forex trading is similar to gambling
Do you believe this myth? If yes, you need to sit back as a trader and ponder upon your wrong approach. In one word, forex trading is like a “business” instead of “gambling” that works solely on hunches and luck.
It is true that the forex market is somewhat unpredictable and involves huge risks for traders. However, unlike gambling, it has a very systemized institution where a learned approach coupled with money management practices can significantly enhance your success chances.
While you can grab some wins by gambling and making blind bets in the forex trading arena, you can never achieve sustained results without a strategic and knowledgeable mindset.
4. You can trade successfully just with technical analysis
Sometimes technical analysis traders are struck so badly with fundamentals that they are left stupefied by how their perfect setup got destroyed instantly.
Know that markets are basically steered by “macro-economic fundamentals” that determine their overall “direction.”. In the recent example, you can note that gold prices against the dollar have been declining for months, and only the fundamental aspects can explain this huge bearish wave.
So, trading solely with a technical approach is like cooking dishes without salt. No matter how much effort you put in, you cannot achieve top results as you are sleeping on a major ingredient.
However, that is not to say that technical analysis is not necessary, It is important undoubtedly but there is only a slim chance you could attain long-term success by not considering the broader, real-world happenings, that are driving the markets.
5. The brokers are your enemy and they are always trying to stop you out.
It might be just the most common myth out there but objectively speaking, it has no logical basis – why a broker would try to screw over its earnings source, which is you, its client? As you know, brokers make money through commissions and spreads, which are increased proportionately to trading volumes. Therefore, most brokers would naturally want their traders to succeed in the long run so they could earn more and more commissions.
Moreover, due to the highly competitive broker market, it makes little sense for a platform to maneuver against the clients as ultimately, they would be left with zero users and their business in shambles.
Though there are some bad actors who try to defraud clients by manipulating prices, it’s extremely difficult to do so now considering the mammoth size of the currency market & increased scrutiny from regulatory bodies.
6. Institutional traders are the “big fish” who are out to get the retail traders
This is another common and accepted myth in the forex trading circles but makes no sense actually. According to the latest stats, retail trading accounts for a mere 5.5% of the entire forex market globally! Given this little percentage, the institutional traders do not bother at all with what the retail traders are doing. Has the majority ever been concerned about the small actors? The big fish are busy competing among themselves and with other bank traders, fund managers, and influential traders without even thinking about the minuscule retail trading transactions.
On the flip side, as a retail trader, you do have to follow the path of institutional traders as they hold the power to move markets. If you trade against them – the majority – and then later complaint about the “schemes of bank traders,” know that it was your fault to stride against the central market force.
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