Forex trading myths: six common ones

Our team has collected the most fascinating common myths about Forex trading here. Although you may know some of them from somewhere, we decided to explain them in a more simple way for those who are intimidated by technical details.

Were you a believer in any of these myths? Leave your comments below and let us know what you think.


#1 you can achieve 100% profitability

Every trader/system is bound to suffer losses from time to time. No matter how good the trader is, they will ultimately lose money. Millions of people are participating anonymously in the market. You can never be sure what each of them is trying to achieve. The trader is only at fault when he fails to follow his plan, regardless of whether the trade is a success or failure.

Some traders only have the chance to win because the risk of losing is present. Profit cannot be achieved without risk. Learning the fundamentals, establishing a good trading strategy, following that strategy and managing your risk will help you grow your account.

#2 major advantage of a good system is that it can be adapted to a different timeframe and still be profitable

Fractal patterns are common in markets to some degree, but long-term patterns differ significantly from short-term patterns. Factors contributing to this include macroeconomics, liquidity needs of heavyweight players, and the relative effect of news releases. It is impossible to change a strategy's timeframe and expect it to have the same effect.

#3 you should do is not push your luck

As of now, there is no scientific proof that if you made profit, you will be less likely to make it again. It is considered superstitious to quit after earning profit (so as not to "push your luck"). The market will not change its behavior because of one trader. Millions of traders make money every day.

Your gain can increase or decrease at any given time, just like at any other time. The market's behavior and probabilities won't change based on whether you won or lost.

#4 Your strategy should be focused on one or two major pairs

Some people find it works, but most experienced investors recommend diversifying your portfolio. Managing risks and trading are made easier with diversification.

The best way to catch strong, clean movements is to pair the most negatively correlated currencies together (the strongest against the weakest).

In the case of GBP/USD and USD/JPY trending upwards both, then GBP will always exceed USD, making GBP/JPY trend upwards even more steeply.

#5 You will improve your trading by adding more filters to your chart

All indicators are determined by the price (and, sometimes, the volume). Additions to the same timeframe will not necessarily lead to independent confirmations, nor will they necessarily add value. There will ultimately have to be some candle on which to enter a trade, and one can do so by simply recalibrating any existing indicators.

Despite their goals of reducing lags and overshoots without compromising smoothness, nonlinear indicators are not always superior to conventional indicators. If you enter the market earlier, you would likely catch a minor correction in the trend instead of the desired full reversal.

#6 Prices change at random

At some point, most traders and analysts struggle with this thought. The market appears to be unpredictable no matter what they do. Although many have fallen into the trap of this thought, we will remain rational and attempt to figure out what it means if this were true.

Consider that all types of analysis would be useless, that all systems would have a zero long-term expectancy, that all profits and losses would be completely random, and that all traders would eventually lose money. Despite sounding terrible, this is not realistic.

For those with doubts, let's collect some evidence of non-randomness for those who already know the truth:

After news announcements, there is a spike in price.

The stabilization of prices/profit taking after rapid market movements.

It is common for traders to place their stops just outside swing points.

- When the market awaits a big news announcement, the volatility often shrinks significantly.

It doesn't mean that traders can always exploit non-randomness profitably simply because it exists. A prime example would be a spike immediately following the announcement of red news.

There is no truth to the statement "All Price Movements Are Random". Systematic profit can be made from trading. It is probably not randomness, at first glance, but rather a lack of information or knowledge.

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