The Truth About Forex Trading

Do yous know the truths about forex trading?

Traders confront a barrage of information when they first out in the markets – and beingness able to sort the wisdom from the folly could be the difference between success and failure. Should you risk one% of your account per trade, or 5%? Does RSI work better than stochastics? And is Bitcoin really a reliable shop of value? Granted, some topics will always exist debatable, but with the help of our DailyFX expert analysts, we uncover the truth nearly forex trading, the lies, and the murky $.25 in betwixt.

First, learn the truth well-nigh your own forex journeying with our DNA FX Quiz, helping you lot detect the kind of forex trader you lot are.

Truth or Lie: Traders Need a Financial Background

"Trading has picayune to practise with 'finance' and more to practice with understanding what is involved in performance-related endeavors" - Paul Robinson, Currency Strategist

A financial background can exist useful for understanding how forex and other markets work. However, more than beneficial are skills in math, engineering and hard sciences, which better set traders for analyzing and interim on economic factors and chart patterns. It doesn't matter how much awareness you have near financial markets – if yous tin can't process new data quickly, methodically and in a focused manner, those same markets y'all thought yous knew then well tin eat you alive.

Respond: Prevarication

Expert TIP: To prepare for trading, focus on developing belittling skills rather than boning upwardly on fiscal knowledge.

Recommended reading:

• Become a Amend Trader Series
• How to Be a Function Time Trader
• Traits of Successful Traders

Truth or Lie: Trading is Piece of cake

" Trading is definitely piece of cake. Existence profitable is where the difficulty lies" - Peter Hanks , Analyst

Trading is like running a business. In order to exist successful, you lot need to learn from mistakes and accept rules in place to help protect your majuscule. Similar a business organisation, information technology's crucial to take appropriate strategies on hand for varying marketplace conditions. Setting up a business is like shooting fish in a barrel, and similarly, trading is easy too. Developing successful strategies and making money? That's the hard part.

Reply: TRUTH

EXPERT TIP: It will seem like shooting fish in a barrel if your early trades go well, but long-term profitability is a dissimilar affair altogether. Make your life easier by researching your trades, using the right position size, setting stops and keeping a handle on your emotions.

Recommended reading:

• Download our Gratis New to Forex Guide
• Top Forex Trading Strategies
• Three Things I Wish I Knew When I Started Trading Forex

Truth or Lie: You lot can't exist successful with a small trading account

"A 20% return is a 20% render regardless of the account size" - Paul Robinson

Can you be successful with a small trading account? It depends on your definition of successful. An account needs to be large plenty to accommodate proper risk parameters. Merely success is relative; a high rate of return is based on percentages and not on monetary amounts.

For example, a twenty% return is a 20% return regardless of the business relationship size. Nevertheless, if your 20% return isn't worth enough in difficult cash, information technology might be hard to incentivize yourself to improve equally a trader.

ANSWER: IT DEPENDS

EXPERT TIP: Your account size will depend on your goals and your prior success. Naturally, experienced traders will take a larger account but to begin with, concentrate on that rate of return percentage.

Recommended reading:

• How Much Capital Should I Trade Forex With?
• How to Decide Your Position Size
• What is Margin Call in Trading?

Truth or Lie: A assisting trader wins most trades

"Think quality of trades, not quantity of trades" - Nick Cawley , Analyst

Bragging rights be damned: the number of trades you win is irrelevant. Assisting traders simply make more than money than they lose.

Say yous win five trades and make $5,000, merely lose one trade and lose $half dozen,000 – yous have won more trades than y'all have lost but are still down overall. Profitable traders volition prepare rigid risk-reward parameters for a trade – for example they might take a chance $500 to brand $1,000, a risk-reward ratio of 1:2.

If a trader makes five trades using this method, loses three of them and wins two of them, the trader is yet $500 in profit ($2,000 turn a profit-$one,500 loss). Don't be afraid of taking a few hits: if your process is sound, one big winning merchandise tin can reverse your fortunes.

Answer: Lie

Adept TIP: Many successful traders volition be losing more trades than they win, but oft information technology won't bother them. Focus on getting the right setups rather than worrying about the ones that got away.

Recommended reading:

• What is a Good Win Ratio?
• How Many Pips Should exist Targeted Per Twenty-four hours?
• Trading is Not Near How Often You Win or Lose

Truth or Prevarication: Y'all need to spend a lot of time monitoring trades

"Spending besides much time monitoring trades can work against you as the temptation to micromanage becomes too peachy" - Paul Robinson

How much time you lot spend trading, and monitoring trades, volition depend on your trading style. Those employing a scalping strategy, for instance, will make a large number of transactions per mean solar day, inbound and exiting many positions, and will need to pay close attention to their trades on the shortest timeframes.

However, position traders won't need to spend as much fourth dimension monitoring, equally their transactions may final weeks, months or even longer – meaning long-term analysis will account for short-term fluctuations.

ANSWER: Information technology DEPENDS

Adept TIP: Enquire yourself what type of trader you are. Shorter timeframes will mean monitoring and analyzing constantly – existence 'always on'. If you lot favor a more relaxed approach you lot may be suited better for position trading.

Recommended reading:

• Trading With Confidence in the Forex Market
• How to Trade Consistently Without Having the Perfect Southward trategy
• The Time Frames of Trading

Truth or Lie: A solid stop loss trumps a 'mental stop loss'

"Reckless traders use a mental end loss. Disciplined traders use a real terminate loss" - Nick Cawley

Some traders abet a 'mental stop loss' when the market gets tough – that is, relying on oneself rather than a estimator to set a level at which to exit a losing position. The problem is, a 'mental stop loss' is simply a number that makes yous worried well-nigh the money yous're losing. You lot may fret most the direction of the market - just you won't necessarily exist compelled to exit your trade.

A fixed forex stop loss is completely dissimilar – if your end loss toll trades you lot are out of the position, no ifs or buts. Exercising proper money and risk management ways setting solid stops. Menstruation.

Answer: TRUTH

Expert TIP: Information technology can be then easy to neglect your stop loss. When a merchandise is going your way, the dollar signs tin blind you - but you should protect yourself against the market turning.

Recommended reading:

• Using Stop Loss Orders in Forex Trading
• three Exit Trading Strategies
• What is Forex Take a chance Management?

Truth or Lie: Success comes from trading markets with the tightest spreads

"The best opportunities shouldn't exist fragile enough in turn a profit potential that a larger-than-normal spread is going to make or break the power to be profitable" - Paul Robinson

Spreads may represent the primary cost of trading, but they aren't the be-all-end-all when it comes to choosing your market place. You may find an asset that has a wide spread but represents a strong opportunity due to its volatility. Similarly, you may observe an asset with high liquidity and a tight spread, just that isn't showing much trading potential. Higher up all, you should allow your trading decisions be governed by setups presented by the market, not the size of the spread.

Answer: LIE

Adept TIP: The spread can stand for a significant cost to traders – but don't let it exist the sole factor dictating your pick of nugget.

Recommended reading:

• What Does a Forex Spread Tell Traders?
• Forex Spreads Trading Strategies and Tips
• Download our free Traits of Successful Traders Guide

Truth or Lie: Expertise in economic analysis is important

"Economic assay is merely one part of trading. Economic analysis and technical analysis go hand-in-mitt" - David Song , Currency Strategist

The economic assay key to a key approach helps requite traders a broader view of the market. Sound noesis of the underlying forces of the economic system, industries and even individual companies can enable a trader to forecast future prices and developments. This is different to technical analysis, which helps to place central price levels and historical patterns, and provides confidence for entering/exiting a trade.

It's true to say that expertise in economic assay is important. Yet, and so besides is expertise in the technicals. Many successful traders will wait to combine primal and technical assay then every bit to be in a position to describe on as wide a range of data as possible.

Answer: TRUTH

Practiced TIP: It may be worthwhile to devise a strategy accounting for the nuances of both technical and fundamental analysis.

Recommended reading:

• Technical vs Fundamental Analysis
• Guide to Fundamentals
• A Day in the Life of a Trader

Truth or Lie: Trading the news provides the biggest opportunities

"Correctly capturing a broader theme tin can be far more fruitful than 'trading the news' per se" - Paul Robinson

News tin create big moves in the market place, but that doesn't mean trading the news leads to the biggest opportunities. For a offset, the volatility of important news events often makes spreads wider, in plow increasing trading costs and hitting your bottom line. Slippage, or when yous go filled at a dissimilar price than you intended, can as well striking your profitability in volatile markets. On elevation of these drawbacks, traders could go locked out, making them helpless to correct a merchandise that moves confronting them.

Reply: LIE

EXPERT TIP: 'Trading the news' can seem like a fashionable thing to do, just marketplace movements tin be unpredictable at the time of major releases. Information technology's often best to steer clear during such high volatility.

Recommended reading:

• Trading the News
• The Trend is Your Friend: Forex Trendlines
• An EMA Strategy With Forex Trends

Truth or Lie: Managing your emotions when trading is vital

"Negative emotions like fear and greed can exist managed without suppressing positive ones" - Paul Robinson

Excluding emotions from trading is an incommunicable effort. It can lead to more internal conflict than benefits, which is why managing emotions is a better way of looking at it. You have negative emotions similar fright and greed that need to exist managed without suppressing positive ones similar conviction that help drive you lot towards the best opportunities.

Reply: TRUTH

Practiced TIP: Even the most experienced traders experience emotion in the heat of the markets, merely how they harness that emotion makes all the deviation.

Recommended reading:

• What is FOMO in Trading?
• Becoming a Better Trader: A Checklist Before Entering Any Trade
• Psychology and Trading podcast

Anything we didn't mention? Leave a comment to give united states your ain truth nigh trading, and brand sure to share this commodity on social media.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

Source: https://www.dailyfx.com/education/trading-discipline/forex-trading-truths-and-lies.html

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