Whether you’re a seasoned forex trader or just a newbie, I’m sure that by now you’ve already come across a few generalities about trading. But be warned! Some may have some truth to them but these three are nothing but myths:
Myth #1: “Try and try. Pretty soon you’ll succeed.”
I’m sorry to burst your bubble but the truth of the matter is, the forex market doesn’t give a cat’s litter about your efforts. Perhaps we have Disney to blame for having this fairytale mindset, thinking that whoever watches the market 24/7, takes the most trades, and gives up his entire social life, will be rewarded with a happy ending.
It’s unfair, I know. But that’s how life works. Think about it. What do you think is the proportion of artists and athletes who dedicate so much time to their craft but still find that they couldn’t live off their careers?
I mentioned in one of my most recent articles that it is possible to make a living out of forex trading. However, one has to be consistently good at it. It doesn’t necessarily mean watching the market non-stop, pulling the trigger on every trade setup you see, or ditching your friends for lunch every day because you feel that you still have to trade.
In order to be consistently good at forex trading, you need to hone your abilities and develop your skills. This means that you have to work on things that you can control. So stop depending on good karma to reward you with pips! For instance (as I have said time and again), start with your trading journal and figure out what you’re doing right and what you need to improve on.
Myth #2: “As long as I have discipline, I’m safe.”
Don’t get me wrong, discipline is most definitely necessary to being successful in forex trading but that’s not all it takes. No matter how disciplined you are, if you find yourself on the losing end most of the time, your trading failure can be attributed to something else.
In fact, trading psychology expert Dr. Brett Steenbarger says that the main cause of trading failure is the lack of an objective edge in the markets. Many traders are guilty of taking trades based on random patterns, strategies, or systems without testing those out themselves or without doing proper research first. This isn’t any different from a person who buys an expensive car without any regard for its features or without doing a test drive.
That’d be understandable if you suddenly stumbled upon a large sum of money by winning the lottery, but it seems unreasonable to risk your trading account or life savings on trading strategies that you haven’t tried out yourself. After all, some strategies work for certain people but not for others.
At the end of the day, traders who have blown up their forex accounts and lost their hard-earned money aren’t necessarily the undisciplined bunch. It could be that they didn’t dedicate enough time and effort in figuring out which trading style is best for them or what kind of mechanical systems they should use. They probably didn’t spend time to practice on demo first or backtest their forex strategies before going live.
Keep in mind that your capital, no matter how huge, is still limited and that it might not be enough to last your learning curve. Learn the ropes and get a good feel of the markets first. That’s what demo trading is for.
Myth #3: “A trader’s number one enemy is his emotions.”
Traders have been told time and again to keep their emotions in check. Being vulnerable to your emotions can have negative repercussions in trading, as your concentration and decision-making process can get skewed.
But think about it for a second. When do you feel most stressed? Is it during those times when you’re trading poorly?
If you answered “Yes!” to the second question, then congratulations, you are a normal human being. Emotional stress is a natural result of poor trading performance. This happens when traders fail to manage risk properly or trade without any objective edge in the markets. What results afterwards is a vicious cycle where one’s negative emotions can damage trading performance.
Always remember that trading is a performance field, wherein success is a result of a combination of talents and skills. As with discipline, control over your emotions is a crucial factor but it’s not the only ingredient to success. Mastering trading psychology simply dictates how consistent you are with applying your talents and skills, but it cannot replace those factors.
Which among the three forex misconceptions are you most guilty of? Remember, young Padawans, there is no universal recipe for success. What works for others may or may not work for you so take every generalization you come across with a grain of salt.