eToro – Forex Trading Forum

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Myth One : ‘There is a failsafe method to make money on every trade.’

It is inevitable that you WILL lose money on some trades. If your expectation is that you will always win you have created a mindste that will make you stay in to trades way past the point that an experienced trader would have closed the position. A small loss is better than a huge loss. There’s no such thing as a failsafe method in forex – doesn’t exist, just like tha proverbial free lunch.

Myth Two : ‘You can play a winning game by making frequent trades with small profits.’

This attitude might just work if you are content to make $50 - $300 per week but you will be seriously limiting your potential for profit. Also, you will not be treating your forex trading as a business – but more like a hobby. Also, all these small trades add up to a lot of spread payments from your account.

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Myth Three : ‘You don't need to know anything about the market to make money in it.’

This is like saying that you don’t need driving lessons to drive a car safely. If you don’t learn how to drive properly you are going to stall continuously, fail to observe your driving environment, get yourself into dangerous situations, damage the car, get injured, injure somebody, get killed, kill somebody .... The same with forex – OK, you may not be risking manslaughter charges or your own physical life. But you will be risking your psychological and financial health – and that of your spouse and children. You cannot succeed at forex with a nominal knowledge of currency exchange and by reading a few articles. You need to make a concentrated effort to understand the forces that drive the market so you'll know the best times to make a move. Study, read this forum, read the eToro blog, practice, practice, and practice on your demo account. Then practice some more.

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Myth Four : ‘You don't need a plan to make money in the currency market.’

Some people think that making money is their plan. This is so wrong – making money is the goal. To trade the forex without a tried and tested forex trading plan is like taking a parachute jump without a parachute. You need a trading plan to keep focused on your goal of making money. Your trading plan will absorb and make sense of the inevitable losses. Don’t be impatient, forex trading isn't a short-term game. It is a sad fact but true that most new traders (95%) quit within the first year because they didn't have a plan to follow.

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Myth Five : ‘If you stick with a losing trade long enough, it will turn around’.

Nope – a losing trade is a losing trade – it will rarely turn around. If you find yourself in a losing trade let it go. Close the trade and shut down you trading platform. If you stick with a losing trade you will lose more money. OK - it's hard to admit that you were wrong and get out - but getting out, and walking away is the best way to avoid losing even bigger money. Why close the platform? Because if you leave it open you will be seriously tempted to try another trade in order to recoup your losses. Doesn’t work – wrong frame of mind. Remember that on one trade will not make you rich overnight. On the other hand, consistently knowing when to get out, when to cut your losses or to grab your winnings, is the way to be a successful currency trader.

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Myth Six : ‘Where there's smoke, there's fire’.

In forex as in any other walk of life rumours are just that, rumours, 99% of the time. If you are a serious forex trader you will not rely on the views of other traders on a forum or a blog – especially if they are recommending a trade. Of course, if it is a regular contributor who you trust – look further into their recommendation. You can be sure that when another trader recommends a trade they are more than likely being sincere – the problem lies in emotions. Trading is an emotional activity – you will not choose to enter or exit a trade just at the same points as another trader. Let hints and rumours can alert you to observe your charts and interpret what's really happening. Then make a decision based on the movement that you see.

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Myth Seven : ‘The more currencies you trade, the better your chances are of scoring a big profit.’

I believe that the opposite is true. The more you know about a currency or a specific currency pair the easier it will be for you to predict how and when it will move. If you focus on learning about one or two currency pairs – regularly observing their chart (not always looking to trade) – keeping up with fundamental news affecting your chosen pair – you will become an expert. The more intimately you understand the way a currency pair behaves, the better your chances of consistently making successful trades. If you focus on too many different currencies, you'll never really get to know any one of them. I only ever trade USD/GBP.

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Myth Eight : ‘Thinking long-term and trading short-term is a sure way to make money in the long run.’

This logic is brilliant ! Or is it ? At first reading it sounds just great – a neat little rule to trade by. But it’s a fallacy. Think about it. If you've decided on short term trading then you need to observe and keep yourself informed about what is happening in the short term rather than trading to what you think the market will be in a week. Today is today. Tomorrow will be tomorrow. Next week is way into the future. Focus on what you are doing. If you make your best trade today and do the same everyday you will consistently be ahead of the game.

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Myth Nine : ‘The way to make money in forex is to always have a trade in motion.’

You can’t be trading all the time – you shouldn’t be trading all the time. I observe my charts for between two and two and a half hours every morning. I don’t search out a trade. If I see one I take it – if I don’t I’ll observe again tomorrow. I always end the week in profit and with my capital safe. You need to accept that sometimes there just isn't going to be a trade that's going to profit you. Don’t let yourself get into the habit of trading just to make a trade. That behaviour is likely to do yourself no good - and may possibly do a great deal of harm.