There are a lot of books written about currency trading, many of them contain valuable pieces of advice. However, in this field exist a lot of myths, which both beginners and experienced traders face. Let's discuss a few of them.
Photo: Flickr
1. You can make money fast and easy
Without exception, everyone who comes to the exchange for money thinks that he is the lucky one who will immediately get into that 2% who earn in the market. Such people do not consider to make additional efforts to study and master trading skills, yet that is exactly what gives a chance to "survive" in the trading world.
It is highly desirable to do it all the time, not to be satisfied with haphazard knowledge and casual earnings, which were obtained with their help.
2. You do not need the trading plan
The other trap is the lack of desire to observe the market independently, to make inferences, and to build up your own trading system. Instead, many traders simply start to trade without going into the details of why the price is rising or falling.
In my personal experience, it takes at least seven years to dive into trading and get at least an initial comprehension of the exchange trading structure. And this is only if the trader deliberately follows his trading plan, constantly makes notes and screens of transactions, as well as monitors his psycho-emotional state.
It would be logical to wonder if you are ready to spend seven years of your life to master this profession. Let every one answer by themselves.
Photo: Flickr
3. There are ever-growing assets
Another interesting myth is that there are tools that are always growing. Alas, this is not true for a long time. To eliminate the collusion of traders and to control the incoming liquidity, 10-12 years ago the markets changed dramatically and turned from "live" to market-makers' markets.
It caused the need to work "in two directions" (for buying and selling), and there were long corrections in the market itself, which were not there before. Even the more conservative U.S. stock market experienced increased volatility and now shows significant ups and downs daily.
However, the majority of traders still have "growth stereotype". They are ready to keep falling positions and suffer losses for a year or six months, although the rules of the game in the market have changed a long time ago. In the long run, the growth shows only an initial source of liquidity - it is not limited by the time of presence on the stock exchange and is always ready for an additional issue.
4. There is no need in hedging
Another myth related to the notion that you can work with one instrument without worrying about risks diversification. I am afraid to disappoint you, but diversification is mandatory.
At least once a year there is a "stellar" event on the financial markets, which changes the value of the asset by thousands of points in five minutes, and the trader does not have time to do anything to prevent losses.
You cannot invest 100% of your portfolio in one trading instrument. We need a "straw", which the trader can "bed" in this case, protecting himself from complete loss of capital. We will not go into the possible strategies of diversification, this is a topic for a separate article. It is important to understand that this is an integral element of a trader's work.
Photo: Flickr
5. The main thing is monthly payments
Every professional and novice trader wants to get 30-60-120% of profit every month. Few people understand that any plus is done "through the minus".
For example, if a trader has a clear set of earning more than 100% per month, the drawdown can reach 60-70%. At the same time, he or she will probably need to overestimate the volume of transactions and trade without a stop. Does everybody have the coolness to work in this mode?
A trader should adequately assess his potential and operate not with monthly, but with annual rates of return. When transferring months a year, he will immediately find out that 4-6% of the monthly profit will give a minimum of 48% per annum in currency, and the acceptable risk will not exceed 2-3% of the portfolio volume.
It is important to be in the black at a long-distance - six months, a year or more. This can be achieved only by a competent and adequate approach to trading and risk control.
6. It will not hurt at all
Without risk in the financial markets, it is impossible to work. This is one of the riskiest areas of activity. It requires awareness and a trading system with a clear mathematical model, their long lapping and running-in. It will not be possible to develop them in one month.
Besides, although few people pay attention to it, a trader needs to work on himself. It is necessary to train constantly and gain invaluable experience "through the pain". No pain, no gain.