Success in the forex market does not depend solely on expertise in conducting market analysis or an extensive knowledge of how the market works. If you’re a forex trader, simply knowing how to implement several successful strategies will not guarantee success alone. An often overlooked aspect of forex trading is a forex trader’s psychology.
If you are a novice forex trader, you may encounter some information about the markets which may seem true to you at first, but are, in fact, myths. Thus, you need to identify and acknowledge these myths so you can disregard them once you start serious trading.
Why Myths Have Arisen and How they affect a Trader’s Psychology
In general, there is a trend of spreading myths, misconceptions, and fake news on the internet, which also extends to the forex trading domain. As a novice trader, you may encounter confusing online content regarding forex trading, which you may struggle to examine the validity of. While many of these myths can easily be discarded, some are based on information about the early forex market. It’s a fact that the forex market scenario has changed drastically since the growth of online forex trading. There are other myths that have arisen because of misconceptions and misinterpreting basic forex market principles. All of these can cause quite the confusion if you’re just starting out. You can miss out on significant profit opportunities if you regard these myths as true, ruining your whole trading experience.
8 Myths Related To Forex Trading Psychology
What are these myths?
1. Forex Trading Is A Shortcut to Get Rich
This is a myth that has been circulated in the market for quite some time now, mainly by some forex brokers and traders who want to entice customers to use their services. It’s true that long-term success in the market is possible. However, it requires a high degree of hard work and experience. Both leverage and the presence of high market volatility make the forex market a dangerous one if you don’t play your cards right. One wrong move and you can lose everything in your trading account. The only way to get around this is to grasp the different concepts and understand them thoroughly and not make any sudden drastic moves, especially if you’re a novice.
2. Forex Trading Is Very Easy
Many new traders think that forex trading is easy compared to other forms of trading. You can easily get fooled by the sales pitch and advertisements provided by forex Expert Advisors and trading platforms. They may claim that they produce guaranteed profits but that’s often not the case. Forex trading can be one of the most challenging endeavors in your life as a forex trader.
Downloading and installing the forex software may be easy but succeeding in actual trading is another matter altogether. You should practice and implement strategies first in a demo account where the risk of losing real money is nil. Once you think you’re ready, you can start implementing those strategies om a live account, even though you have to be careful at first.
3. Forex Price Movements Are Random
It may seem confusing at first when studying forex price movements, as novice traders struggle to predict future market moves. If you haven’t yet mastered analytical skills, the price movements may seem random to you. However, there are some common patterns that experienced traders and analysts often talk about.
For instance, when any important economic news gets released, volatility usually increases. The effects of this price fluctuation can remain for two to three days after the initial announcements. The price then reverts back to its original values. Consequently, volatility can shrink when a piece of anticipated news is about to be released. All of this proves that price movements are not random and follow some basic principles. The myth that forex trading is like gambling, is, therefore, false.
4. Trades Cannot Be Timed In The Forex Market
A trader possessing a well-planned trading plan can time the market accordingly. They base their moves on their fundamental or technical trading strategy. The myth that forex trades cannot be timed is mostly propagated by expert advisor sellers, who have a vested interest in selling you their products.
5. If You’re A Good Stock Trader, You’ll Be A Good Forex Trader as Well
This is a myth that is quite common in trading circles. It’s based on the assumption that one’s trading skills can be applied equally to different markets successfully if they master trading in one market. This is far from the truth. The stock market and forex market are radically different in many aspects. For instance, forex markets react to news in a more volatile manner compared to stocks. Also, the nature of forex trading involves trading currencies against one another, which is absent in the case of stock markets. To succeed in any financial market, you will need a logical and well-researched approach. This includes the forex market as well, where your approach should be based on the particular forex market principles rather than on your experience as a stock trader.
6. Bank Traders Compete and Stop Retail Traders from Making Money
Contrary to what many experienced forex traders say, banks are not competing directly with retail traders and thus do not have many advantages over them. While it’s true that some banks may have departments dedicated to retail trading transactions, but they do not really care about the comparatively low profits of individual retail traders.
7. Forex Markets Are Mostly Rigged
The presence of fraudulent brokerages as well as those who have mal-intent cannot be disregarded. But this does not mean that the market is rigged because it cannot be fixed. Added scrutiny from regulatory bodies around the world has also prevented anyone from trying to manipulate in any way. There are a large number of reliable and licensed brokers offering services in a secure way.
8. Only Professionals Make It in This Market
While it is true that professional traders have advantages over retail traders in certain areas, there have been enough testimonies and success stories from the retail trading sector as well.
No trading market is without its myths including the forex market However, by successfully disproving or disregarding this myth, you can move forward to reach your goal of success by confidently applying your own trading principles and skills.