Forex Fallacies: The Top Ten List

When it comes to trading Forex, most short-term traders are also short-time traders. They lack the stomach and the capital to stay in the game. For the patient, committed, informed investor, Forex is a promising and lucrative Market. Most “wanna-be” traders do not fit the above description, however, and ultimately lose out.

The Internet is replete with so-called “expert” advice on just about everything…and the Foreign Exchange Market is no exception. The trouble with all of this is that bad advice is often given and repeated until it becomes accepted wisdom.

The following is a list of the top ten Forex fallacies:

1. You have to predict accurately to win in the Foreign Exchange Market.

This is inherently wrong, as there is no sure-fire method for making absolute predictions. Conditions are fluid. Too many factors are beyond the realm of absolute predictability.

2. Trade the trends.

Closely related to the first fallacy, this is also dangerous, because most people understand this term to mean “follow the trend.” Trend-following systems are forever being developed and implemented. The trouble with that thinking is that it does not allow for the inevitable corrections and flats in the market. Trend-followers generally lose more than they gain, because the market takes from them more than it gives.

3. Markets dance to a scientific tune.

Many believe that Markets move to a scientific theory. A little sound reason refutes this idea. Think about it: if the market moved to a scientific formula, such as those propagated by Gann, Fibonacci and Elliot, everyone would know the price in advance, and the market would cease to exist.

4. Tight stops are foolproof.

The trouble with such thinking is that any hard stop of less than 50 pips has no real chance of surviving, due to Market noise.

5. A complicated, complex strategy is the way to go.

Truthfully, simple is more effective. The more indicators you have to monitor, the more elements there are to break down and throw you off your game.

6. Asset management is as simple as implementing stops.

Placing stops does not equate to managing your money. Such management is more about realizing the relationship of risk to reward, knowing what you have to gain and what you can stand to lose in the pursuit of success.

7. I can prevent future losses entirely by learning from the losses I have already suffered.

Certainly, a person who fails to learn anything from a loss is bound to repeat possible mistakes. However, anyone who trades on the Foreign Exchange Market – or any financial market — for a substantial period is going to suffer setbacks along the way. It is the big picture, the overall promise of the market that has record numbers of investors flocking to it.

8. “Where there is smoke there is fire.”

With the advent of the Internet and the proliferation of websites, blogs, and chat rooms devoted to Forex trading in particular, rumor mongering is a way of life. Often, a rumor that has no basis in truth is born of deceit and spread in ignorance. Sometimes, smoke is nothing more than a smoke screen.

Will Rogers’ whimsical advice, “Believe half of what you see and none of what you hear,” may be extreme, but in the Forex Market, it might be a good approach.

9. You don’t need a plan to trade currency.

Someone has said, “No one plans to fail, but many fail to plan, and thus do in fact fail.”The Forex Market has its difficulties, ebbs and flows. To succeed in the long-term, you have to plan your work and then work your plan.

10. Trading is a great way to get rich quickly.

Most short-term traders are also short-time traders. They lack the stomach and the capital to stay in the game. For the patient, committed, informed investor, Forex is a promising and lucrative Market. Most “wanna-be” traders do not fit the above description, however, and ultimately lose out.

Welcome to the exciting world of Forex trading! Just watch your step, avoid the fallacies, and forge ahead into an exhilarating and profitable venture.

[tags]forex market, forex signals, foreign exchange, forex trading system, trade the trend, asset management[/tags]

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