We live in an age of information overload. It affects everything, and the Forex market is no exception. Whether as experienced or novice Forex traders, we often hear different opinions and myths about Forex trading that may affect our trading decisions – and, worse still, our profits.
Let’s look at five irrational myths about Forex. This will help us to avoid incorporating these incorrect assumptions into trading decisions.
1. Forex is manipulated
You might sometimes hear unhappy FX traders claiming that the market is rigged or manipulated – these traders are seeking to blame the system for their losses. However, the Forex market is a legitimate trading forum – which is subject to regulatory restrictions. As the largest trading market globally, there are hundreds of thousands of transactions and data inputs each day. The vast scope of the market means that manipulation and corruption are difficult to achieve.
2. The more complex the better
This is a very common irrational myth that is shared by other asset classes as well as foreign exchange. Do not be fooled into believing that simple strategies cannot deliver good, robust returns. The assumption that if you keep tweaking and enhancing a simple strategy you will make more money is incorrect. In fact, it is often the case that simple strategies – that isolate trends in price movement, for example, are the most lucrative. Don’t fall into the trap of adding complexity endlessly – it will not be rewarded and can lead to wasted time and money.
3. You have to always win
As an active FX trader, it is impossible to make money on every single trade. Some trades will incur losses – but the smart traders know when to cut their losses and move on. Profit-making in FX trading is about making more money than you lose – not about making money on 100% of trades. It is unrealistic to attempt to be right every time – if you can apply this balanced understanding to your trading you will use resources more wisely and you may generate improved returns.
4. Forex is all about short-term
It is a common misconception that Forex trading is only for short-term investment horizons. The reason short-term FX trading has become so popular is because of access to leverage. However, there are many traders who profit from identifying and trading long-term currency trends. You might analyze based on fundamental factors, for example. Long-term trends can be identified by looking at the larger picture rather than day to day fluctuations.
5. FX trading will make you rich overnight
Do not be lured into the false promise of “get rich quick” outcomes from Forex trading. It is very unlikely that FX trading will make you very rich over a short time frame. However, FX trading might be a substantial source of return for investors who closely guard their strategies and actively participate in market movements. Patience and dedication are important components of success. Therefore, FX trading requires consistency rather than a gambling-based approach.
Final Thoughts
Unaddressed, these myths can harm your trading approach and your profits. By applying a logical, well-researched approach FX traders can better understand currency markets and make more effective trading decisions.
