One of the biggest problems encountered by currency traders of all skill levels is that they fall prey to a number of myths related to forex trading. When they start to believe these misconceptions they risk losing money on their trades. Here are some of these myths that you should avoid:
1. Predicting where the market will go is the key to making money in forex trading. The problem with trying to predict the markets is not that you will likely be wrong but that you will end up making trades based on that assumption. Instead of doing this, you should instead look at the market trends and make trading decisions using your trading plan.
2. More complex strategies are more profitable. This is one of the biggest mistakes that novice traders make. They use a simple strategy and make a modest return. They therefore believe that the more complicated their strategy, the higher the return that they can enjoy. The problem is that the more complicated the system and the more variables are involved, the higher the risk that something will go wrong. You should simply accept the fact that as a currency trader, the best you can do is win more trades than you lose, and end up with a profit at the end of the day. Currency trading is not a place where you swing for the fences and end up with huge profits in exchange for taking a big risk.
3. Setting stop losses is enough to ensure good money management. Even a stop loss will not be enough to save you from losing money if you don’t have an overall good risk management strategy. This involves other factors such as the amount of money you will risk per trade (which should be around 1% to 2% of your total trading account) and how many open positions you can have per trading session.
4. Trading with multiple pairs is better than focusing on one. The main reason why the best forex traders specialize in one currency pair is so they can become completely familiar with it, which increases the chances of their making successful trades. The best traders are those who are patient and willing to play a long game, focusing on locating the best trading opportunities and then going for them rather than those who are only chasing short-term profits by making quick traders that exploit sudden price fluctuations.