In markets as big as Forex, myths are inevitable. The foreign exchange market is more than $5 trillion in liquidity and is, therefore, a lucrative area.
However, as a beginner in currency trading, you will encounter many myths, either to entice you into foreign exchange or to scare you.
Enter Forex trading with a sober mind and guide away from all ridiculous misunderstandings!
Here are the most common myths about the foreign exchange that you will hear:
1) There is a 100% profit opportunity: Traders mistakenly believe that the profitable nature of foreign exchange is a machine that makes money. Trading companies of every trading type have a chance to lose; even the legendary Warren Buffet has suffered losses! Forex trading does produce good profits, as it is, but there is an ever-existing risk element that can scale to you to lose a lot of money!
2) A strategy works everywhere: One shoe is not suitable for all feet; the same approach does not work in different time frames.
A country’s economy, inflation, public debt, and other factors affect the foreign exchange market.
A strategy revolves around such conditions, so no two Forex trading strategies can be the same! It may allow you to trade through, but the results will be very different.
3) Focus on the main pairs: Trading only EUR/USD or USD/JPY may work initially, but in the long run, diversification is substantial. Besides, diversified portfolios help to avoid risks.
For example, pairing the most potent currency with the weakest currency helps you grab a clean action.
Similarly, no pair will continue to trend, and each currency will eventually fall. So it’s better when you’re monitoring more than just a few currency pairs.
4) The foreign exchange market is random: Currency trading does have signs of randomness, but it is not a complete gamble. Several traders, who are poorly equipped, rushed into the deal, thinking that this was the side of roulette and ultimately losing.
Regardless of the few examples of randomness, most foreign exchange price movements are based on trends, and good traders move in and out based on these changes.
Forex trading strategies are designed around these movements to ensure the best results.
5) A sound system can be converted to different time periods and still be beneficial: The market may be “fractal” to some extent, but the price pattern over a more extended period of time is qualitatively different from those in a shorter time.
This may be due to factors such as macroeconomics, market participants’ segments, higher cumulative averages, liquidity required by heavyweight market participants, the relative impact of news announcements, and market considerations at different times.
You can’t change the time period of the trading strategy and expect it to get the same result.
6) Add more filters to your chart to improve your trading: All indicators come from the price (and in some cases, the volume of the transaction).
This means that adding more metrics in the same time frame does not necessarily result in a single confirmation or value.
Nonlinear indicators (which aim to reduce hysteresis and transitions without affecting smoothness) are not necessarily superior to traditional indicators.
Trying to enter the market early may lead to a small correction in the market, rather than a full reversal in anticipation.