Most people have preconceived ideas about the foreign exchange market. These ideas often lead people to not think about trading on the market. It is important that you know what these myths and preconceived ideas are. You should also know what the truth is in regards to these myths.
Gambling and Trading are the Same
The biggest myth about the foreign exchange market is that trading is like gambling. This is something that a lot of people think, but it is wrong. When you trade on the forex market you are analysing the price movements and determining where the market will go. With gambling you are simply taking a chance. With gambling you are also unable to lower the risks you are facing, which is something you can do on the forex market.
The Foreign Exchange Market Exclusive Club
A lot of people think that trading on any financial market is something old wealthy people and brokers are able to do. This misconception goes back to the start of the stock market where the average person would not be able to trade. However, the forex market is not like this as anyone with an internet connection and some capital to open an account can trade. Of course, you should learn a bit about the market and trading before you start.
Buying Low and Selling High
Another myth of the foreign exchange market is that you should buy low and sell high. This is actually a strategy that comes from stock trading where you buy stocks cheaply and sell them when they are worth more. With the forex market you are able to make a profit when the price movement is in a downtrend. This comes from the fact that you are buying and selling a currency every time you trade.
As all forex transactions are done using currency pairs you will always be buying and selling. This also means that you are able to make a profit when the currency pair price movement is down. Following both up and down trends is one of the most common trading strategies.
Everything That Goes Up Goes Down
This low of physics does have a small relation to the forex market. However, the problem is that while the price may come down it is possible that it does not return to the original position. There are currency pairs that have risen 100 pips and stayed there for prolonged periods of time. When they did eventually come down it was only by 20 pips. There is no way to predict what pride the trend will return to if it falls at all.
Know a Bit About Everything
Many new traders feel that if they know a little about a lot of forex aspects they will be successful. This is not actually true as you need to know what you are going to do and all the aspects involved in your trading. If you only know a little about the technical analysis you need you will not complete it properly and this leads to losses. You will also not be able to create a good trading plan and this will fall to pieces when you test it on a demo account.
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