If you are a forex trader, then you’ll be super excited to know some forex strategies myths and facts, that will in turn shape your trading philosophy.
I’m sure you also want to know some common and widely used forex trading strategies, what people believe about them, the fact and bitter truth you have to face.
Let’s get started.
Forex Strategies Myths and Facts You Should Know
There are a lot; I mean endless forex trading strategies. I can’t talk about all but I have handpicked popular ones you might have come across.
1. Price Action
Price action traders believe that PRICE is king. They don’t believe in indicators but price alone.
The basis of this trading is that price pattern repeats itself because there are repeated human behaviors. Breakout, support, resistance, supply, demand, and volume all fall into these categories.
Myth: As long as you know price action you are close to being a profitable trader.
Fact: Price action can make or break you, if you think knowing everything about history in forex is only the key, then librarians should be the most profitable traders.
The basis of this trading style is that the way oscillating indicators move is not the same with the price movement.
For example, price can make higher peaks while the indicators are making lower peaks, then this inconsistencies lead to a good trade signal.
Divergence traders rely on the use of indictors to enter or exit their trade. And when they start losing, they start looking for better indicators which can give them accurate divergence pattern.
If they can’t find the best, they start combining more indicators so that they can have added confirmations. They forgot that too much indicators leads to too much problem.
Myth: If I can predict inconsistency between oscillating indicators and price frequently then I have the Holy Grail.
Fact: According to Charles Darwin: it is not the strongest of the species that survive or the most intelligent, but the ones that are most responsive to change. The same goes to your indicator.
The question is; is your indicator a lagging indicator or leading indicator? I think you should answer that.
Also Read: Top ten forex vps hosting platforms
3. Trend Trading
These traders believe that price historically often moves in trend. They rely on indicators to get rid of noises visible on chart. The truth is that all trend indicators are lagging.
For example, I have seen a lot of traders trying to modify and continue to modify their indicators not to be a lagging indicator. Indeed, that is a waste of time.
Myth: As long as the trend is your friend, you don’t have any problem.
Fact: The trend is your friend until it stabs you in the back.
Also Read: How much is dollar to Naira today
4. High Frequency Trading
According to Investopedia, HFT is a type of algorithmic trading characterized by high speed. This type of traders uses powerful tools to transact a large number of orders at a very fast speed.
It is a program trading platform that uses powerful computers to transact a large number of orders in fractions of a second. It uses complex algorithms to analyze multiple markets and execute orders based on market conditions.
They use complex algorithm to analyze multiple markets and execute orders based on market conditions.
Example of this type of trading is ARBITRAGE. A forex arbitrage is a risk free trading strategy that allows retail forex traders to make a profit with no open currency exposure.
It involves acting fast on opportunities presented by price inefficiencies, while they exist.
Myth: Profitability of arbitrage opportunities has changed.
Fact: Profitability of arbitrage has not changed. HFT is not eliminating efficiency. It just makes them disappear in slightly less than a fraction at the blink of an eye.
Even if you have what it takes to start using an arbitrage system? Can you show your friend the broker you are using?
5. Grid Trading
This type of trading seeks to capitalize on normal volatility in currency markets by placing buy and sell orders at certain regular intervals above and below a predefined price.
This type of traders believe that it requires little forecasting of market direction and can be easily automated.
Myth: As long as a trend occurs in the market, there will be no problem.
Fact: There will always be a problem because there’ll certainly be a range in trending market.
The idea behind the martingale system is that statistically, you cannot lose all the time, therefore you should increase the amount allocated in investments if they are declining in value.
This type of system is commonly compared to betting in a casino. When a gambler using this method loses, he’ll double his bet.
Myth: You will always crash your account using martingale
Fact: You will always crash your account using martingale if not used the right way.
Also Read: What is a Pip in Forex trading
7. News Trading
This type of trading deals with market economic event such as high impact news to make fast profit within seconds.
This type of traders, track down economic event of different currencies such as GDP, Non-farm payroll, Retail sales and others.
This type of trader use some strategies such as straddling, retracement, hedging and others.
Myth: Once I can know when the event will be active. Then I have the Holy Grail.
Fact: Brokers will either break you with spread or affect you with withdrawals. If you have a reliable broker can you share it with a hundred people?
The 7 trading strategies above are few out of many others, seeing the principles behind each of them at work and the other side of it brings us to the truth.
The Naked Truth Truth About Forex Trading Strategies
The primary difference between a profitable forex trader and unsuccessful forex trader is how they handle losses. The truth is, all trading strategies make losses too.
I’ve never met a golfer who has never lost a golf ball and I’ve never met someone rich who has never lost money.
What you know about handling losses would make you profitable. What you don’t know about handling loses is your highest risk.
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