4 Forex Trading Myths Debunked
There’s no denying that forex trading can be a tricky arena, and that careful consideration needs to be taken before every trading decision. What makes this field even more competitive, however, is the wide variety of myths that sometimes dictate, and complicate, otherwise good trading decisions.
Keeping this in mind, here are some of the most commonly heard trading myths we thought you should know about in order not to let them scare you:
You can never go broke by taking small profits
At first glance, this particular myth doesn’t seem too crazy. However, keeping at the forefront of your decision-making can eat up the same profits it mentions. Taking profits earlier than planned can – and will – decrease your trading system’s expected returns, and potentially turn a winning strategy into a losing one.
The majority of traders trade with the belief that their profits will balance out their losses in the long run. However, when you exit trades prematurely, your profits will begin to decrease and they will no longer be able to offset the losses you incur.
Pure price action is more reliable than indicators
Contrary to what most traders think, technical indicators and price action are actually the same. The only difference is that indicators use the same information and apply it to graphs, bars, and other visual representation tools. They are, in other words, simply derivatives of the price of whatever asset it is you are trading.
So, don’t make the mistake of believing that price action is superior to indicators. Keeping this in mind, you don’t necessarily need to focus on indicators if you know how to interpret price action. They are essentially telling you the same thing, and you just need to know what to look for to take advantage of the signals they give you.
Leverage is dangerous
Leverage is often viewed negatively despite the fact that it doesn’t affect trading performance. However, the issue with leverage is the expectations it creates since it lets traders start with a smaller account.
Traders who usually think forex trading will get them rich quickly often don’t follow a comprehensive trading plan, and hence tend to use higher leverage. And when high leverage is combined with a lack of a plan and proper risk management, disaster usually follows.
Used the right way, however, leverage can be a great tool for growing a trading account rather quickly.
Longer time frames are easier to trade profitably
The majority of forex traders are under the impression that working on a greater timeframe will make things simpler since this, supposedly, leads to more accuracy and more time for planning.
However, greater time frames for trading demands a completely different skillset. If you struggle with being patient on shorter time frames, you will truly have a problem when you’re required to wait a considerable amount of time for each trading signal.
Moreover, traders often lose money in the long-run because they hold losing trades for longer than they should, and give up on winning trades too quickly. Moving to a larger time frame can potentially reinforce this bad habit, and will therefore not save you from your own trading mistakes.
As you have now seen, there are lots of myths circulating in the trading community that are not necessarily true, and it is therefore not always to your advantage to believe in them. We hope we have managed to clarify some of this here.
If you are interested in learning more about trading and how you can generate a consistent income from the forex market using robust trading strategies with minimal risk, consider signing up for one of our free forex trading seminars around Australia.