Want to make a lie seem like the truth? Say it, again and again. Not only it seems like truth, but it evolves into a myth. Its the case with trading myths as well. A trader is on his own when it comes to learning. He/she surfs across the web and educates oneself. Every mind conceives an idea uniquely – sometimes correct, other times wrong. However, more often than not, misconceptions are the ones that stay longer in the hearts of a trader and reverberate to become a ‘forex trading myth’. Traders who understand the myths sooner than later are the ones that become successful in their career. So, let’s cut short your learning curve today.
#1- Pros have a secret ingredient
Even seasoned traders are a victim of this trading myth. After back to back loss, most feel that they lack a crucial tool which institutions possess.
Well, to your disbelief, there is no secret ingredient or holy grail in the market. Say it out loud now!
The same old charts and indicators are only available at everyone’s disposal. But it is the in-depth knowledge of its application that matters. The relentless effort to come back from a slump that matters.
If at all, the successful traders have a secret ingredient, it is the ability to maintain objectivity midst the intense environment.
#2- The more indicators deployed higher the success rate.
This forex trading myth most certainly brings more bad than good.
Most indicators are lagging indicators — they give the indications only after the price makes a substantial move in the direction.
So, by adding more indicators to your system, you are procrastinating your entry.
It is advisable to take cues from one or, at the most, two indicators.
Excelling in an indicator, knowing its intricacies, when to rely on and when to pass over is the best way to go forward.
#3 The new age trading myth: TP should be twice the stop loss
Modern age mentors popularized this infamous notion.
In a range bound market, such set up rarely forms.
In a trending scenario, the market rallies, rallies and just rallies. So why settle for a handful when you can reap in a sack?
The funny thing is traders do the hardest part of catching the trend but fail to capitalize it to the fullest, courtesy to the notion.
However, a trader should not expect skyscrapers every time. Be pragmatic. Set targets according to the setup, not to your wish. When you stumble upon a high conviction setup, use partial profits, rather than ‘all or nothing’.
It is this part that defines you as a trader. Because setups form the same in every chart, but setting the entry and exit is the part that adds uniqueness to you. No books but experience can teach you this part of the deal. So, always play to your strengths. But how?
#4 The oldest myth of the lot: Money making with trading is easy
If this fantasy lured you into forex trading, then you’re up for a disappointment. Like any other domain, you need to learn the nuts and bolts.
There are many aspects of trading – Technical, Fundamental and Psychological.
First, you need to hone your skills in one of these aspects.
Second, you need to understand the uncertainty pertaining to this field. Then, find a way to make money amidst uncertainties. But, remember there are no guarantees in this business. That sounds just about right — easy — isn’t it?
Trading isn’t a bed of roses, to feel comfy and cozy. It is a long dark tunnel with deadly thorns sprouted sporadically, and at the other end, a bright light — wealth. Many have traversed these with much difficulties, which they do not say it out loud. So, you can too, if you understand the adversaries associated with it.
The success depends on a confluence of factors — knowledge, emotional balance and most of all, luck. Because one needs to be in the right place at the right time.
It never is easy!
#5 Day trading means daily trading
Day trading means a trader closes out his position on the same day. It doesn’t necessarily say that you should trade daily.
The best intraday trades are the ones where a positional or swing trade makes its maximum move. And it isn’t a daily phenomenon.
Also, it is difficult to ascertain the intraday trend when the market goes to a pullback mode during swing moves. Because you can never know when the positional trend scoops the intraday trend. These are the tough times to a day trader.
The fixation, the compulsion to trade daily forces you to make meaning out of meaningless market movements and enter into simpleton trades.
So, let go of the trading myth to trade daily. Pick and choose the days that you feel the maximum move is to happen in a swing move.
Note: It takes an immense experience to maneuver the intraday market when its dull wit. So, it is better to sit on the sidelines early on in your career.
#6 A trader should watch charts all day
Forex market operates 24×5. But, the volatility does not remain the same all day.
The finest movements are captured mostly during the best trading sessions. So, the smart way to go forward is to trade during these hours.
Even the positional and swing trades demand your presence only during these hours. The breakouts that happen during these hours mostly provide the follow-through rally. And the elsewhen breakouts tend to end up as a fakeout.
Also, gazing at the charts for a prolonged period, as the price ticks, only stir your emotions and trick you. This trading myth equally harms your body as it does to your capital.
Trade the smart way, not the hard way!
#7 News trading is profitable
Lucrative but deceptive!
Quick profits in short span without much work always entice traders. But, it usually happens the other way around.
An odd attempt might fetch you success, but it certainly isn’t viable to maintain the consistency of accuracy. It’s a big ask even for a veteran trader.
Because, it requires expertise in all fronts – fundamental, technical and psychological.
First, to have an idea of whether the news is already priced in requires adequate knowledge of fundamental analysis.
Second, the technical structure needs an assessment.
Third, the trader should crack his peers’ ensuing psychology after the news breakout.
So, it takes a wizard to perfect the art. For a novice, it’s a quicksand trap.
#8 You must catch the highs and lows to be profitable
You never know when this trading myth creeps into your system. But it does and stays long with you.
Most traders are always obsessed about catching the lows (or highs).
Although the quest fails more often, they never give up.
When they miss it out, they sit it out. And continue their quest in another asset.
However, truth be told, the best entries are the ones when prices have moved a bit from their lows ensuing confirmation of the reversal.
Such setups also have good momentum and provide a better idea on the placement of stop loss.
But an obsession is an obsession!
#9 Once you get through the basics; you’re going to make a fortune
You learn the basics – indicators, pattern and price action. Then, you apply it live, ta-da! Profits! You feel you have found the ultimatum to fast track your journey to the top of the hill.
But, its just tip of the iceberg!
In trading, the real learning curve starts when you start trading live. And the process never ceases. The market never remains the same; it evolves.
So what works today, might not work tomorrow.
When a trader braces this reality, with humility and maturity, a wizard is born.
Uncertainty is the only certainty in the market!
Trading Myths: Conclusion
Trading the fraternity that thrives on rationality is plagued with myths and behavioral biases. When you cure one, another surface. So, be wary of it. Never let a belief enter your system which you can’t define, as it influences your trade decision as well. Hence, have an eye for detail and rationality.
Fact: Trading is no easy, but no difficult either!