What You Must Not Believe while learning Forex Day Trading
Description: Some misconceptions newbie traders have about forex day trading.
While picking up forex day trading, some traders read so many fictitious points that leave their trading account in tatters when applied to real money. Here, we will be looking at some of these points and why you may never witness profits trading with them in mind.
The 1-minute charts are the best way to fast profits in forex day trading
Normally, the individuals preaching this mantra use extreme examples where the markets moved as much as 30 pips in a particular direction. What the newbie traders fail to understand is that the 1-minute charts are the most disorganised when it comes to trading. It is very hard to run any modicum of decent analysis on the minute charts; so, when it goes good for the trader, it is all smiles; but most times, the trader will be left nursing losses. Again, losses on the 1-minute charts are normally amplified, as the trader has to pay spreads as many as 5 times in an hour! This is why traders who trade off these charts normally hope for as many big moves as possible; otherwise, they will end the trading day on a negative. So, there is no “best way to fast forex profits” but even if there was, it certainly isn’t the 1-minute charts!
Your account will never crash if you limit your risk to 2%
What this mantra does is that it gives people false sense of security in forex day trading. Sure 2% of the trader’s money may not look big but what people fail to understand is that it is only a matter of time before the account goes bust. If your trading strategy is one that isn’t profitable, you will lose your trading account sooner or later. Even if you don’t lose the account, you will be left running around in circles. So, while it is good to limit risk to a reasonable level, you shouldn’t believe that your account is automatically safe with reduced risk. Rather, focus on looking for a reasonable trading strategy.
Economic crises are very good for trading
Well, this is true to an extent, as an economic crisis can make the markets move in large unpredictable swings. The downside to this, however, is that the trader must be on the market at all times; otherwise, the volatility will sweep away the account in a very short time. This is what most trainers won’t tell you. During high volatility periods, traders that have systems that use a particular amount of pips as stop loss on all trades suffer badly. The best way to trade during this time is to reduce position size and give trades room to breathe.
The Forex market is too big to be influenced
To an extent, this is true – but not entirely. A single company does not have what it takes to influence the movement of currency pairs but, every week, traders witness wild swings that are attributed to speeches from central bank governors, etc. Some central banks like the Bank of Japan and their Swiss counterpart have been known to influence prices as soon as they are not happy with the current exchange rates. All of these are external influences you must be aware of.