Forex trading can be overwhelming, particularly for new traders. Due to the highly robust nature of the market, it is imperative to read up on forex trading before actually putting money in the currency market. Acquiring knowledge is even more important due to several forex scams that have cropped up all over the Internet.
Several “experts” promise to multiply your investment exponentially within a few months. Besides, several forex trading myths are circulating online, following which could prove detrimental to one’s portfolio. Some of the most common myths about trading in the currency market are:
Trade Not-Stop to Win Big
Even though forex trading is a 24/7 market, it doesn’t imply that traders must remain in front of their PC throughout the day. In reality, most professional traders a single trade on several days. It is advisable to sometimes get out of the forex market completely. This is because the really big trends occur only a handful of times every year. Entering the market during these times increases the probability of greater profitability.
Diversification Reduces Risk
Trading multiple currency pairs can not only be time-consuming but redundant. Unlike in the stock market, where there are over thousands of stocks you can choose, but the forex markets is limited as the stock market. Since the market is highly liquid and transparent, it is best to have a narrow focus.
Stop-Loss is Just for Beginners
On the contrary, stop-losses are used extensively by established traders. It is an excellent way of reducing the possible losses involved in trading. Stop losses can be set according to the risk level one is comfortable with. If a trader is willing to risk more, he can adjust the stop loss accordingly, limiting losses but not restricting potential profitability.
Predicting the movement of prices will surely increase your chances of losing, as forex is a highly unpredictable market. Therefore, the only way to trade in the currency market is to confirm that a trend is underway and then execute the trading signal accordingly.
The Best Way to Make Money is to Buy Low and Sell High
When the market volatility is very high or low, traders tend to get tempted to predict “micro trends” tops and bottoms. Unfortunately, this is a very high-risk and low-return strategy because of the random nature of the currency exchange rates.
To sum up, the best way to win in the forex market is to keep acquiring knowledge. Do not fall victim to forex trading myths. Finally, keep your trades and portfolio uncomplicated, accept losses and learn from your mistakes.