Knowing the difference between common forex trading myths and reality is essential to long-term success. In this article, guest editor, Dr. Gary Dayton explores the top 10 trading myths to be aware of. Notably, these myths are closely linked to trading psychology, which goes hand in hand with a successful trading career.
1. People are born traders. While it is true that certain personal characteristics make it easier to trade, no one is born a trader. One of the main themes of the Market Wizards books written by Jack Schwager is that almost none of the market wizards was successful from the start. They all worked hard at it.
2. You have to have a high IQ to trade. Just not true. In some ways, an above-average IQ may be a hindrance. Trading is a human performance activity where strong intellectual abilities are unnecessary.
3. Top traders are successful because they have the “right trading personality.” There is no such thing as the “right trading personality.” Research has been unable to find a strong correlation between personality type and trading success. It is important, however, to understand your personal characteristics and how they may help and hinder your trading. Read more about types of trading styles for different personalities.
4. Trading is easy. It sure looks that way, doesn’t it? Just draw a few lines on the chart, watch your indicators, and follow the price bars. The truth is that trading is a difficult business to master. It involves different skill sets and abilities from what is needed in most other professions and careers. The trader must understand his or her personal strengths and limitations and develop specific skills to deal with the mental and emotional demands of trading. The later skills are the most difficult to develop and the most overlooked.
5. You must be tough, hard-charging, and fearless to be successful. That’s more media hype than anything else. It glorifies a strong ego, which is a detriment in trading. The most successful traders I know quietly do their research, study the charts, and patiently wait for the right moment. They strive to keep their ego out of their trading.
6. You must trade without emotions. If you are human, that’s impossible. More importantly, when you understand your emotions you will realize they are assets, not liabilities. The real keys are:
7. Top traders are usually right about the market. Top traders have many, many scratches and losing trades. Top traders are at the top because they exercise good risk control, limit the amount of loss from any given trade, and have developed a psychological edge that allows them to be unfazed by small losing trades. Most of their trading consists of modest profits and very small losses. When conditions are right, they step upsize and let the profitable trades run.
8. Paper trading is useless – it’s not a real trade without money behind it. If you aren’t paper trading, you are doing yourself a disservice. You should always be paper trading your trading ideas. Why limit your education and experience by the amount of capital you have? Paper trading keeps you sharp; you learn the conditions under which your trading ideas work best. Where else can you get such vital education at so little cost?
9. Master the technical skills and you will be successful. This is where most traders spend the vast majority of their time, but it’s only part of the picture. You also have to learn important performance skills. Traders should spend as much-if, not more-time learning to develop their psychological edge as they do on developing their technical trading edge.
10. Trading is stressful. It certainly can be stressful, and it certainly is stressful for many. It doesn’t have to be. Successful traders have a certain mindset. They put little importance on any given trade. Their focus is on the long haul. They know that if they attend to the aspects of trading that are within their control (i.e., trade selection, entry, risk control, and trade management) the profits will take care of themselves.
Learn more about the realities of trading, and what common habits, philosophies, successes, and failures characterize a typical trader, with our Day in the Life of a Trader campaign.
Editorial Staff at Benstride is a team of Forex traders led by Vincent Nyagaka. We have been creating Forex tutorials since 2013, and Benstride is one the largest free Forex resource site in the industry.