Archive for September 1st, 2010

Forex Myths 10 That Cause 95% of Traders to Lose

I have been a trader for over 25 years and the myths below are common ones and if you make anyone you will lose your equity and join the 95% of traders who lose.

Let’s look at these forex myths and why they will guarantee you lose.

1. You Can Predict The Market

This is a common myth and the bulk of novice traders think they have to predict where prices are going to succeed – wrong.

In forex trading if you predict you are relying on hope or making an educated guess and the market will kill you.

Never predict!

Always look for price confirmation. If for example you think a level of support will hold, wait for price momentum to turn up above the level and confirm it has held – then trade.

Also don’t believe the scientific methods sold on the net they don’t work.

If markets were scientific, we would all know the answer in advance and there would be no market!

2. You Can Make Regular Income Day Trading

You can’t make money day trading full stop – yet more new forex traders fall for this myth than any other.

All volatility in short time frames is random and support and resistance levels are meaningless, so you can never win

If you don’t believe me, ask a forex day trader for a real time track record over the longer term and you won’t get one – period.

3. You Can Buy Success

Forget all the vendors trying to sell you methods that will make rich (all for a few hundred dollars!) most of these guys have never traded in their lives and rely on hyped exaggerated copy to sell their systems.

To succeed you need to have confidence and discipline and that comes from within no one else can give you success – it comes from within and your own understanding.

4. You Should Keep Stops Close To Reduce Risk

All you will do is get stopped out by normal volatility and the same goes if you try to trail a stop to close.

To make money you need to take a risk.

Most forex traders want to restrict risk so much they guarantee they will lose.

5. You Should Diversify To Reduce Risk

If you are trading over 100k maybe, but if you are a small trader diversification will simply mean you dilute profit potential – To win you have to bet meaningful amounts.

I see vendors saying you should only risk 2% per trade well on ,000 that’s 0!

If you risk that you won’t have much profit potential.

If you have confidence in your forex trading strategy risk 25% or more and have the courage of your conviction.

6. You can Listen and Act On The News

There is a lot of news you can get and it won’t help you.

It’s better today than it ever was, but the ratio of winners to losers remains the same.

If you try and trade off news stories, you’re chasing the market.

News is discounted in a split second and is discounted instantly by forex markets which are then looking to the future.

The arguments are convincing in telling you why things happen but not what is going to happen – ignore them.

7. More Indicators = More Profits

After all 10 indicators are better than 2 or 3 – Dead wrong.

The best forex trading systems are simple and robust, whereas a complicated trading system has more elements to break and will fail.

Keep in mind all the best forex trading systems are simple, NOT Complicated.

8. If you Work Hard Your Chances of Success Increase

You get rewarded for being right about market direction – nothing else.

If you spend 10 hours a day or ten minutes, it doesn’t matter so long as your trading signals are accurate.

9. Trading To Much

Many traders simply think if their not trading their missing something but the opposite is true – they end up trying to force trades or take trades with bad odds and get wiped out.

Only execute trading signals when the conditions are right and be patient.

10. Not Learning the RIGHT knowledge

This is really a combination of the above points.

Successful forex trading means:

Working smart rather than hard and learning just the right information and discounting everything else.

Contrary to popular belief, all the information you need is available free on the internet and if you study it, build your own system you have can have confidence in you can achieve currency trading success.

Forex Education ? Before you Buy Advice Online Consider This Question

As part of their forex education most new traders consider buying an e-book from a vendor and if you are one of them you need to ask one question:

How qualified are they?

Sure the advertising looks enticing but can you learn forex trading from them and can they give you currency trading success?

If you want to find out ask one simple question and it is:

Can I see your audited real time track record over the long term of 2 – 3 years?

Chances are you won’t get it.

Why because most e-book sellers simply rely on making claims (with no substantiation) and they normally only give you a hypothetical track record – let’s define what this is:

Its simulated and hypothetical and done KNOWING the closing prices – Well that’s not difficult but when you trade there is a problem:

You have to trade not knowing the closing prices!

The fact is most of these vendors are NOT trading the system they are making money selling it to you and in the vast majority of cases help you.

In fact you can get most of the information free on the net, or it’s based around logic that simply doesn’t work.

If you want to pay money for your forex education, then pay it to a trader who has walked the walk, rather than simply talks the talk.

This means going to amazon.com or your local bookstore, here you will find a wealth of forex education that is worth the money, from some of the top traders of all time.

We have written articles on some of the best books so look them up.

If you want to learn to trade, make sure the person giving the forex advice has been in the trenches and done it themselves – if they haven’t made money with their forex trading system, what chance have you got?

Keep in mind this fact: 95% of forex traders lose and 5% win.

I would be surprised if any of the 5% did it buying an e-book without a track record.

Forex trading looks easy but few succeed – that doesn’t mean you cant win, you can but be realistic about what it takes to succeed and achieve long term currency success.

Forex Trading ? if 95% of Traders Lose Then to Win you Need to This:

Do the opposite of what they do! This may sound obvious but most traders like to follow accepted market wisdom and trade in the direction of the crowd. If you want to win at forex trading you need to step away from the crowd – and that’s what this article is all about.

In terms of following accepted market wisdom like day trading, buying low – selling high and predicting the market, these are 3 examples of how to lose when devising a forex trading strategy and if you don’t know why read our other articles!

Here we want to focus on taking trades that the majority take and see their equity slaughtered and how you can trade in the opposite direction at the right time.

FACT:

If you buy into extreme bear markets and sell into extreme bull markets, as greed and fear blinds the participants to the reality – you will win.

Not only that – but you will trade with low risk and high reward.

It’s a fact that humans push both bull and bear markets too far and if you can spot these extremes and hit the turn you will rack up fantastic gains with low risk.

But How Do You Spot Them?

There are of course forex charts, where you can use technical analysis to look for price spikes – but this does NOT tell you how bullish or bearish the participants are – it just shows you price spikes and trends.

What you need are some sentiment indicators that show how much emotions are moving prices and when the turn is coming.

The best one of all is the CFTC Net Trader Positions and their FREE!

Not many traders use them, but this bi-weekly report is essential for all forex traders.

They show the breakdown of the futures forex markets – but these positions are just as useful when trading cash.

What do they do?

Quite simply they break the position into three main groups:

- Hedgers: These guys are the real pros and are simply hedging a cash position. There not trying to make money so are not influenced by greed or fear.

- Large Speculators: These are large funds who are mostly trend followers

- Small speculators: Everyone else

So why is the above breakdown so relevant?

Quite simply, you can look for extremes either bullish or bearish in speculative positions – with commercials holding and opposite position and moving the other way.

History shows us that the commercials are the right way around at EVERY major top or bottom and the speculators get slaughtered as the market turns.

Be careful!

You have to look for extremes. Once you see speculators heavily net long and commercials moving to the short side – a turn is coming – Prices are to far from fair value and its time to look for a position.

Watching these positions and spotting extremes in sentiment will allow you to:

Trade against the majority when everyone else thinks you are crazy!

You will have the confidence to do this, as the commercials are right about market extremes time after time and you can then look to enter your trading signals, knowing your trading with the smart money.

A Word of Caution

Net Traders positions alert you to the fact a big contrary trade is coming against the herd – but they should not be used on their own – they are not a timing indicator.

You need to use your forex charts and your normal indicators to enter a trade when price momentum turns in your favour.

Trade With the Pro’s

Want to know what the real pros are doing?

Then that’s what following the commercials via Net Trader Positions gives you.

If you want to trade with the smart money and catch the big profits from the big moves – trade with the commercials for bigger forex profits!