Forex Trading Wisdom

By: Sacha Tarkovsky

When I read a lot of accepted wisdom by so called experts, I wonder if these people have actually traded in their lives.

Here is some common advice that I see all the time, that if you follow it you will lose.

Don't fall into the trap of accepting it or following it.

Here are 6 of my favorites:

1. Day trading is a low risk high reward way to trade

How many writers do you see talk about day trading and how successful they are at it?

Lots!

Now:

How many of them can show a real time track record of profits over the long term?

None.

This is simply the dumbest way to trade there is.

All short term volatility is random.

You can never get the odds in your favor and you will lose and lose quickly.

2. Knowledge is power

No its not.

Only the RIGHT knowledge is power.

Trading is made very complicated by many experts yet, simple systems work best and the real problem for most traders is acquiring self confidence in their own ability and discipline.

Most traders like to follow others and if you do that, you will more often than not lose.

3. Buy low sell high will make you money

Well we all want to do this:

Pick the market bottom and sell the market high but it's simply not possible.

Take an example:

Prices are moving to support so a trader buys, trying to predict a bottom and hope support holds.

Well, that's a good way to lose your money trading against price momentum.

You need to wait for the turn and see price momentum move back up.

Sure, you won't get in at the bottom but the odds will be in your favour.

On the other hand, a breakout occurs of important market highs so the trader thinks:

Can't buy that and waits for the pullback.

Of course, it never comes and the trader is left watching one of the biggest trends of the year accelerate away from him.

He should of course have bought the first break!

It's a fact:

Most big trends develop from breaks of important market highs or lows and if you don't follow them you won't catch the big trends.

Fact is:

"Buying low and selling high" will never make you money Buying high and selling higher will"

4. Listen to the news.

This is a great way to lose money.

All those experts taking convincingly about where prices should go and it's all so believable.

Of course, where prices should go and where they do go, are two different scenarios.

Experts are not traders and are there to entertain and give good stories.

More often than not their wrong - don't listen to an expert, use your own brain and make your own mind up.

5. Paper trade will help you

Use a demo account and you will sharpen your skills. To a degree it's true, but its use is limited in helping you become a good trader.

As there is no money on the line and no pressure paper trading is easy.

When you're in the brutal world of real trading and thousands of dollars are on the line the experience is far harder.

6. Trail stops quickly

The idea here is to lock in profits.

Most traders become so obsessed with doing this they simply get stopped out of a trade and are never able to follow a big trend.

The fact is forex trading involves taking a risk.

Try and restrict the risk to much and you will simply never make any big profits.

Traders get so obsessed with avoiding risk they actually create it and guarantee they will lose.

These are 5 of my favorite accepted wisdoms that will see you lose and we will cover some more in part 2 of this article series.

Foreign Exchange
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