Forex trading wisdom

There is a lot of wisdom and advice shared among traders and usually believed to have originated from so-called market experts. While some of it may be true, others are simple myths with no serious value behind them.

8 wisdoms for successful forex trading

Low risk/high reward 

Experts may make day trading sound easy and profitable but, it’s far from the truth. Day trading is hectic, nerve-racking, and difficult yet can be very rewarding if done correctly. You may see a lot of experts discussing the ease of day trading indicators as well as how profitable it is but if you ask any of them about their verified and authentic success in day trading, most would not have any track record to back their claims.

While there is no right or wrong in trading, looking at the longer timeframes may provide a more centered approach to trading as opposed to short-term volatility which could move markets all over the place.

Knowledge is power

This is not entirely correct. The right knowledge can be very powerful. Simplicity works when it comes to trading and can bring about success to traders but what will make sure you are consistent is how disciplined you are. You could have the best trading system in the world and still fail or lose money simply because you are not sticking to the rules.

In reality, we might see others doing great and wish we could follow them but given how dynamic this market is, traders can only make it on their own when they make it their own and find their own edge and approach to trading.

Buy low and sell high

This is another serious misconception that traders believe should be done in order to be profitable. If a market is moving lower and finds support, a trader may be tempted to go long around those levels but the reality is, the momentum is bearish and the price could head lower. It might give a good risk to reward ratio but the odds will be against you. A better approach would be to wait for the price to begin turning around and then getting in early before the move is underway or complete.

Never worry about missing out on a trend. it’s better to get in late or not to get in at all than to get in at the wrong place. Buying high and selling higher makes more sense than buy low and sell high.

Listen to the news

This is one of the fastest ways to lose money when it comes to trading. For the most part, the news is already priced in and releases can never be predicted no matter how much research you spend doing on the forecast, the economy, previous numbers, and other factors. Furthermore, experts who are attempting to decipher certain market conditions or throwing wisdom around can be very dangerous for traders.

For most, price should go somewhere but where it goes is a completely different scenario. The wisest and best way to approach trading is by using your own judgment and doing your own analysis which ultimately helps you build the comfort and confidence needed to become successful at trading.

Demo trading benefits

To a large degree, this is true as it will allow you to navigate the trading world and understand how it works without risking real money in forex. It will also help you sharpen your trading skills while building consistency.

Nonetheless, trading too long on a demo account could make you complacent to the idea of having real money on the line. Aside from the fact that you need money to make money, you also need to experience fear and stress when trading with real money and that is not possible with a demo trading account.

Nowadays, you can start small and with just a few Dollars which could give you a better psychological trading experience than spending too long on a demo account.

Trail stops quickly

The idea of trailing stops is to protect your profits as early as possible. While in hindsight, it’s a nice idea that could save you money, it can restrict you from reaching your targets or making enough to keep your system profitable.

Some people become obsessed with protecting their positions that they miss the bigger moves they were originally aiming for.

When it comes to trading, you have to assume a certain risk and allow your trades to breathe while finding their way towards success, if your initial analysis is correct.

Use indicators

There is absolutely nothing wrong with using indicators, shown in Figure 1. In fact, some people solely trade with them and are profitable. Trading Indicators may be visually appealing and could help you see price action in a different way but at the end of the day, they represent price which means if you just look at the price, you should be able to figure out everything needed to make an informed decision.

Figure 1

Again, if you feel you need another way of looking at price, use indicators but it’s only a personal addon to your success and not a real factor that could make a trader profitable in the markets.

See what others are doing

This is a broader topic and one that can be misleading to most traders. At times, most traders, especially beginner forex traders, are positioned on one side of the market, as evident by data released by different brokers and you will see the market going the opposite way. 

For a while, this continues, and these traders are likely sitting on heavy losses. Suddenly, you see the market reversing and you assume they are making money. This is a possible scenario and it’s also common to see traders on the wrong side of the market.

Nonetheless, is this enough to assume the other side when such a scenario arises? Not necessarily as the trend could be short-lived and others could be on the right side of the market from the beginning.

Conclusion

Don’t attempt to follow others or trade the opposite of what they are doing. It’s not random but not consistent enough to give you an edge in the market. After forex brokers began releasing data, this method was put to the test and nowadays, many people are constantly trading against each other which has created an entirely new market equilibrium.