The Most Common Myths About Forex Trading

Financial trading itself has become increasingly popular with a lot of people who would have never in generations past thought to explore the various markets and invest either on a small scale or take an alternate route into becoming a trader. 

In the vast majority of circumstances, this is excellent for the market as a whole, as a more diverse market is one that is richer in opportunities, more liquid and has greater chances for more people to succeed. 

However, the increasing popularity of forex trading thanks to more readily accessible forex funding for skilled traders with unconventional backgrounds in finance has unfortunately also led to a number of misconceptions spreading about the forex market and successful strategies. 

Ultimately, the forex market is very different to stock trading, and one of the biggest traps an uninitiated new trader can fall into is assuming that they are more alike than they truly are. 

With that in mind, here are some common myths that have circulated about Forex and the facts behind the fiction. 

A High Rolling Attitude Can Succeed In Forex 

Business man throwing the dice gambling game in hand concept

In other parts of the stock market, a somewhat contagious attitude amongst new traders, particularly those trading online and on a small enough scale is that you can beat the market with impulse and a high-risk attitude that borders on outright gambling on the stock market. 

Whilst such a “get rich quick” attitude can on exceptionally rare occasions pay off on the stock market and has become the primary strategy of venture capitalists and neophytes alike, such a mentality will lead to swift and devastating losses in forex. 

Successful forex trading is about a solid and consistent trading strategy where you make a lot of trades with small but consistent gains to remain above your earning curve. Outside of gigantic market-shifting black swan events, sudden surges and drops are relatively uncommon. 

The More You Trade The More You Earn 

This is the perfect example of a statement that ostensibly sounds like a truism; obviously, if you make money trading a certain amount of the time, you’ll make even more if you just do the same but more often.

Ultimately, unless you are comfortable and skilled enough to become a forex scalper, where you take advantage of a lot of small price changes during a trading session and catch the wave of huge news, it is best to focus on quality rather than quantity. 

Much like how the famous martial artist noted that it is better to practise one kick 10,000 times rather than 10,000 kicks only once, sticking to a few currency pairs that you know the ins and outs of and being patient and deliberate will pay off far better than leaping in. 

You Should Trade In The Wake Of Big News 

Another misconception that really only applies to skilled scalpers is the idea that trading in the immediate aftermath of big news stories and high-impact reports is easy money, but it is a misconception that emerges from a logical place. 

The general rule is that the more liquid and volatile a market is, the easier it is to trade and make money in. This is, in part, why greater care needs to be taken when trading on the Japanese and Australian forex markets compared to the UK and US ones, as the latter has more liquidity at its peak. 

High-impact news stories by their very nature are volatile and a lot of trading activity happens then, but it’s almost too high-profile and volatile for most traders to operate in real-time, and requires almost instant evaluation of how a report or announcement will hit the market. 

With so many traders staring down the market, waiting to flip the switch and make a move on their strategy, what looks like easy money from the outside (such as taking currency pairs against GBP during September 2022’s fiscal event) is the result of complex strategies often planned much further in advance than you might expect. 

Often it is better to wait and aim for short gains once clear trends have emerged rather than jump into a trade you can’t escape. 

The Forex Market Is Inherently Predictable 

How many times have you heard someone claim that they have unlocked the market and they can predict exactly which way it will go? It is such a common falsehood that any claims of market guarantees should immediately be treated with suspicion. 

A lot of new traders will try to predict or gravitate towards people who make authoritative-sounding predictions for reasons we will explore below, but doing so is a fool’s errand that leads us to false conclusions and a reliance on our own biases.

Trading markets in general are built on the decisions of millions of people, something that inherently is not easy to read and understand. As well as this, if the market really was that easy to optimise, there would be no money in trading. 

Forex often moves too quickly to be truly predicted, and so instead traders should focus on a sound, nimble trading strategy that focuses on overall success, ensuring losses have as little effect as possible and profits are magnified. 

You Should Aim For Perfection Every Time 

This is connected to the previous myth and is also one of the biggest traps any person moving into forex from other trading disciplines or other career paths should avoid as much as possible. 

It is not defeatist to say that you will not succeed in every single trade you do. Forex works on fine margins and sometimes slight market ripples can throw off a trade and force you to cut your losses. This happens to every single forex trader and highlights the change in mindset you need to succeed. 

If you try and find a strategy wherein you never lose a trade, you will either never make a trade at all or you will be stuck with a rigid strategy lacking the ability to adapt to conditions that are constantly shifting and evolving. 

Losses are so close to inevitable that it makes no difference, but not all losses are equal. There are forex trading stories of people who spent days with nothing but constant small losses, but stayed ahead and made shrewd trades that followed their strategy and made greater long-term results. 

Ultimately, getting experience with both winning and losing trades is the best way to trade and thrive as a trader in the long term, especially since as noted above, you cannot “get lucky” with forex the way you possibly can on the stock market. 

The Best Strategy Is To Copy What Worked For Others 

Caucasian businessman trading online, using computer technology, looking on stock exchange
Caucasian businessman trading online, using computer technology, looking on stock exchange

Every forex trader is running their own race and will be developing and adapting their strategy based on their account, budget, targets, risk tolerance and level of experience with the currency pairs they are trading. 

This means that whilst there’s a lot of advice out there, most of it will at best be only partially applicable to your situation, much like how you cannot get advice for running a marathon from either someone who jogs casually or from someone training for a sprint event. 

A strategy that worked for someone else is very unlikely to work wholesale for you. Instead, what you should learn instead is skills that can be widely applied to a range of situations, such

as the right moment to stick with a strategy and when to adjust, as well as how to manage your risk and money properly. 

Money Management Is Just Cutting Your Losses 

Related to the above, money management is one of the most important sets of skills you need to develop as a trader in order to succeed, as it is not just about making great returns but also minimising losses in order to remain ahead of your target. 

However, quite a few rookie traders will limit their money management to setting stop-loss orders and having a threshold before they cut their losses and sell their position. This is important but is far from the only way money management is important. 

Money management is about focusing on how much relative to your total account you are risking on each individual trade, whether they need to hedge against each other or can be coordinated and how many trades you can have at your disposal at a single time. 

Money management is the most important toolkit of skills to learn once you have gotten a start trading in forex, and many funding programmes will specifically be looking for how you manage your account and your risk in their initial tests, applications and simulations. 

Making Money Is All That Matters 

Depending on what type of trader you are, it can either be refreshing or frustrating when people talk about how ultimately all that matters is staying ahead of your targets and making money. This is not least because it isn’t true. 

Whilst making good returns is obviously important, a disciplined trading approach that makes only modest gains will likely be more successful in the long term than a highly risky portfolio that makes a big gain once. 

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