If you are a newbie forex trader and you want to learn the truth about forex trading as it applies to you and your trading business, one of the first things you need to understand is that many myths have arisen over the years that relate the topic of trading. Some of these myths have arisen due to the way things used to be in the forex market before online forex trading became available to retail traders.  Others probably arose as exaggerations based on specific cases that were in no way representative of the forex market as a whole. Still other misconceptions seem to have come about due to misunderstandings of basic forex market principles and practices among those less educated in this area.

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: It will focus on those myths that either have no current basis in fact or which seem to be based on infrequent events that are atypical of the forex market in general.

Myth 1 : You Need to Have a Lot of Money to Trade Forex

This myth is actually an outdated truth: back in the day, an average person couldn’t access the Forex market unless they were super wealthy individuals capable of investing 6-7-digit amounts. Interestingly, this myth is one of the modern-day untruths about FX trading that used to more common place. Back when online forex trading was unavailable, retail traders pretty much did not have access to the Interbank forex market unless they happened to be very high net worth individuals who could trade amounts over $1,000,000 and were creditworthy enough to be extended a credit line by a financial institution. Happily, with the advent of online forex brokers, forex trading is now available to just about anyone with a modern computer, an Internet connection, and a modest amount of money to put at risk.

Myth 2 : 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.

Myth 3 : Trading is Like Gambling

A rather popular forex myth is the idea that trading forex is identical to what gamblers might do at a casino. While forex trading certainly has speculative aspects to it, since it involves putting capital at risk, it also has a more strategic aspect to it that distinguishes it from gambling. Also, the odds of winning as a forex trader can be considerably improved by using well established market analysis methods like technical and fundamental analysis, so it pays to become well versed in these techniques.

Another important way to improve your chances as a forex trader involves using sound money management practices like sizing positions appropriately for your account size and allowing profits to run substantially while cutting losses quickly. Most losing traders approach the market the way most gamblers approach a casino. Basically, while you can indeed blindly take bets within the forex market just like a novice gambler, if you really want to become a successful forex trader, you will want to learn to take strategic risks instead of blind ones.

Myth 4 : Use day trading to make money

Traders tend to gravitate toward day trading for several reasons. Day trading allows a trader to execute more trades, which logic suggests should allow profits to stack up quickly. Because most traders use quite a bit of leverage, they are reluctant to hold their positions overnight due to the increased risk of doing so.

The truth is that day trading may not be right for everyone. Day trading requires a different skillset and a different personality type from swing trading, longer-term momentum trading and investing. Day traders must be able to focus for extended periods of time and make decisions on the fly. They also need to be able to sit through quiet and frustrating periods without letting emotion get the better of them.

If you are more of an analytical or strategic trader, you may be better suited to longer time frames. The fact that you can execute more trades will not help if you are not trading the strategy that is right for you.

Myth 5 : “Only professionals can succeed in trading”

This point is the easiest one to demythologize – just look at hundreds of success stories featuring average people who started with no financial knowledge whatsoever. After all, a bright 7-Eleven salesperson can trade better than someone with a degree in economics can. However, it doesn’t mean you don’t need to learn how things work on Forex. You can ENTER the market as an amateur, but you definitely need to learn and practice if you want to SUCCEED.

Myth 6 : “If you have extra money, you’d better keep it in a bank instead of investing it”

It depends on what scares you have like losing money and never getting a chance to be the boss of your life.

Forex is a complicated investment opportunity, but storing your money in a bank is not even an investment. Technically, investment is oriented toward future returns, and thus entails some degree of risk.

Myth 7 : You Need an Economics or Finance Degree to Trade Forex

If you have ever worked in or visited a professional foreign exchange trading floor, even at the most prestigious financial institutions, then you will already know that this myth is not entirely true. Perhaps one of the more interesting facts of trading currencies is that many professional practitioners do not necessarily have advanced degrees related to this field.

Furthermore, trading currencies seems to be something that even a bright person working in a humble position at a farmer’s market or at a bookie may actually be much better at than a highly analytical person with a PhD in economics from one of the world’s top universities.

Myth 8 : Forex Traders Have to Watch Their Computer Screens All the Time

Virtually no trader can reasonably be expected to watch a market around the clock. Common forex trading misconceptions like this one probably arose due to the fact that the forex market trades on a 24 hour basis from the Auckland, New Zealand open on Sunday afternoon until the New York Close on Friday afternoon.

Most professional forex traders cope with the forex market’s round the clock opening hours by either closing positions out at the end of their trading day or Furthermore, Just placing an order the trader who hold the positions on overnight will simply leave take profit and stop loss orders with their online forex brokers to execute if the market reaches their specified levels. Some retail traders also use an alert service on their mobile devices to let them know when their watched exchange rate levels are approaching or have traded. As a retail trader, if you are going to use bracket orders to manage your existing forex positions, you do not need to constantly watch the market. You can also automate your trade plan’s market analysis procedure to identify trading opportunities for you so that you do not even need to monitor the market yourself for such potentially profitable situations, and can simply monitor your system’s alerts. Some traders prefer to fully automate their trading plans or use forex trading systems that trade without human intervention.

Myth 9 : “Market fluctuations are random and impossible to predict”

It might look so if you look at a certain chart displaying some short-term situation. However, if you take a closer look, you’ll see that the exchange rates move in trends, and these trends are not random at all.

Technical analysis tools will help you analyze the situation, spot the trend, and trade along with it to benefit from it in the end. Obviously, the global economy is too complicated and heavily influenced by multiple factors, which makes it impossible to make correct predictions in 100% of cases. On the other hand, the only thing that matters is whether your trading efforts were beneficial to your bottom line.

Myth 10 : Being unconventional improves your chances of success

Being conventional or unconventional does not have much to do with a person’s chances of success trading forex as much as one’s understanding of the FX market, its drivers and the factors that influence foreign exchange rates. Rather than trying to be unconventional, good traders learn and adapt to the changes in the market, which improves their chances of success.

Conclusion:

To succeed in any financial market, one needs a logical and well-researched approach. This superstitions only create room for errors and subsequent losses. Overall, using foreign exchange as a component of your overall investment portfolio, or to manage the ebbs and flows of running a global operation, can be a strategic way to diversify your assets, but staying informed is critical. Winstone Prime provides comprehensive market news on all the major currency pairs daily and weekly.

“Trade wisely with the help of facts, not myths”.