Trading Tips

7 Popular Forex Trading Myths Debunked

Forex Trading Myths

The world of Forex trading is full of myths. Many new Forex traders have a lot of misconceptions about how Forex trading works. So, it is very much necessary to discriminate between truths and myths and discard the myths. John F. Kennedy said, “The great enemy of the truth is very often not the lie, deliberate, contrived and dishonest, but the myth, persistent, persuasive and unrealistic.” Myths are not intentional lies. They are pieces of information that float around disguising themselves as truth. In this article, we will explore some of the popular Forex myths and debunk them.

1. Forex trading is a quick way to make money

This is probably the most popular among Forex trading myths. Many people who are starting out in Forex trading are under the impression that Forex trading is a quick way to become rich. So, we find many young and curious traders in the market who dive into trading without doing their homework. Most of them lack the basic knowledge of how Forex trading works. Their focus is on making some quick money rather than trying to learn trading first and gain some experience. But if you want to really succeed in Forex, you need to first let go of the idea that Forex trading is like some get-rich-quick-scheme. No, it is not. It is a serious business that requires a lot of planning, discipline, learning, hard work and patience.

2. You can be right all the time

Forex trading often challenges a person’s ego, a human being’s instinctive desire to be right all the time. Many traders often get carried away in the attempt of being right. Some people even take trades just to experience the thrill of being right about a prediction. But this is one of the important Forex trading myths. If you want to become a successful trader, you need to let go of the obsession to be right all the time; because you can’t. In Forex, losses are quite common and the market goes against your predictions many times. You need to accept this fact and not feel down when there is a loss.

3. You can earn good profit with an undercapitalized account

This is another important one among the popular Forex trading myths. It is true that Forex brokers allow you to open an account with a capital as low a $30 or $50. While it is true that you can trade even with a small capital, you cannot really make a reasonable amount of profit with it. Forex trading is a business; the more you invest, the more money you can make. A high investment allows you to risk more and choose higher lot sizes. If you have a strategy that gives you consistent profits, then with good capital and the right amount of risk, you can get a reasonable profit. But if you are undercapitalized, you may lose your capital in a matter of a few days.

4. Forex is only for short term trading

Trading in very short time frames like M1 or M5 looks very attractive to many people. A lot of new traders are into scalping because you can make some quick pips even though the profit is small. High leverage has also made short term and scalping very popular. But this is also one of the Forex trading myths floating around. In technical analysis, higher time frames tend to be more accurate. Trading higher time frames require a lot of patience, but you will get more profit pips with each trade, pay less number of spreads and also enjoy stress-free trading. The potential of trading daily, weekly and monthly time frames are untapped by most of the traders.

5. You don’t have to learn Fundamental analysis

It is true that trading the news looks a lot complicated. But it should not be ignored. Many Forex traders think that fundamental analysis is just a choice and it can be skipped if you are not comfortable with it. But unless you leave your comfort zone, you can’t succeed in trading. A major economic report can cause sudden, highly volatile and unexpected movements in the market. If you are unaware of a news report and place a trade during its release, you may have to face bitter consequences. So, it is very important to debunk this myth as it is one of the Forex trading myths which is very popular. Fundamental analysis is as important as technical analysis; so don’t skip it.

6. Trading is similar to gambling

Many Forex trading myths are formed because of a lot of our preconceived notions. And, considering trading as gambling is one of them. It is quite natural to think that way in the beginning as trading looks somewhat similar to gambling. But trading has a strategic aspect to it which distinguishes it from gambling. Successful traders do not depend on luck but depend on their analytical skills. You don’t do any such analysis in a casino. So don’t trade Forex blindly just like you gamble in a casino. You can increase your odds of winning trades by improving your skills in technical and fundamental analysis, planning well in advance and following good risk management.

7. More trading means more money

In any business that you do, quantity is money. This means that the more work you do, the more money you can earn. More number of finished products translate to more profit. But this is not true in Forex trading. In Forex trading, when you place more number of trades, you are diluting your potential to make a good profit. Because, when the trades are less, you will naturally pick the setups which are more strong and seem to be more accurate. But when you attempt to overtrade, you will end up choosing setups that are less accurate too. There are many professional traders who just make 2-6 trades in a month and get a really good profit. So, do not focus on the number of trades you make. Instead, focus on the quality of your analysis and the trade setups that you choose.