Common Myths about Forex Trading
In many cases traders, newcomers as well as veterans, end up losing huge amount in forex trading by believing in some facts, which are myths and at times misleading. Some of these myths are spread by brokers, vendors, or advertisers having vested interest.
One of the most common myth is you need to be present always in the market. This is practically impossible for any human trader to attend a market that runs throughout the day and night. Forex market is highly speculative. Big price movements are not usual and takes places only few times during a year. It is all about taking small profit relentlessly. The bottom line is your profit potential does not depend on how often you trade but how good you are in identifying trades. If you have developed the nose for identifying the right trade selectively, you will find your profits soar.
Another popular myth is diversification of portfolio reduces risk. This is not true always. It dilutes the profit potential. It may so happen that you catch a big move, but your other trades face losses. One trade may give you only marginal profits thereby reducing your overall profit. In forex trading the profit depends on taking calculated risks when the odds are in the trader’s favor.
You will find many traders believing in the opinion that day trading makes money. You must remember that short-term volatility is always random. Prices move anywhere in a particular day and for this reason, support and resistance levels are meaningless.
For a market like forex, predicting is not always the correct way to making profits. You can only make profit when the market confirms a change in the trend. Executing trading signal in that point of time may present you handsome profits.
Another popular and widely spread myth is buying low selling high is the best way to make money in forex trading. You may find that many of the big trends start from new market highs and not during market lows.
Forex market does not move scientifically. In this case all traders would know the price in advance and there would be no market at all. There are so many factors (and which are extremely dynamic in nature) that influence the forex market it is almost impossible to predict the market with scientific accuracy. We will be discussing more myths in some future post.