What are your favorite trading myths?

Hey dear Pipmakers!

The purpose of this thread is to share some of our favorite trading myths.

Ever felt irritated that some old-fashioned piece of trading advice is still being touted even after being so thoroughly debunked in your own private debates with your self? Ever felt outraged that more people don't know what's happening inside your head and are therefore still providing a safe breeding ground for propagating-loving memes (in the Susan Blackmore sense)? Well, this is the place to express your ire!

Debating is allowed, as long as it's kept civil! And when I say civil, I don't mean North vs. South, that's a civil war, it's the exact opposite of what we want. I don't mean East Coast vs. West Coast either; I don't know of any rapper called Civil. Also, I don't mean Overton vs. Anheuser-Busch Co., that's a civil lawsuit. I also don't mean Sid Meier's Civilization (unless you're seeking a diplomatic victory), and I don't mean Captain America vs. Iron Man. Those are exactly the kinds of scenarios we want to avoid!

Okay, now that that's clear, let's get on with the myths!

The following is my weak attempt at a Table of Contents for this thread. It's incomplete, inaccurate, and my own posts feature prominently in it :

Positive Risk Reward Ratio :
http://www.forexfactory.com/showthre...26#post7856526
http://www.forexfactory.com/showthre...95#post7857695
http://www.forexfactory.com/showthre...87#post7861887
http://www.forexfactory.com/showthre...99#post7857899

I trade pure Price Action :
http://www.forexfactory.com/showthre...51#post7856551

Markets are fractal / Lower timeframes have more noise :
http://www.forexfactory.com/showthre...73#post7856573
http://www.forexfactory.com/showthre...88#post7862188
http://www.forexfactory.com/showthre...84#post7862284

You can make a living trading forex :
http://www.forexfactory.com/showthre...13#post7857013
http://www.forexfactory.com/showthre...80#post7857780
http://www.forexfactory.com/showthre...85#post7857785

Moving your SL to BE :
http://www.forexfactory.com/showthre...26#post7857026

Pros teaching Amateurs :
http://www.forexfactory.com/showthre...11#post7857511
http://www.forexfactory.com/showthre...52#post7860452
http://www.forexfactory.com/showthre...16#post7861216

Banks/Big Dogs/Big Players/Market Makers aren't out to get you, they aren't manipulating the market, stop being paranoid and just admit you're a bad trader :

http://www.forexfactory.com/showthre...71#post7868171

Price Action is a leading indicator :

http://www.forexfactory.com/showthre...13#post7862313

90-99% of forex traders fail to make money :

http://www.forexfactory.com/showthre...96#post7863496
http://www.forexfactory.com/showthre...37#post7873937

I'll set the ball rolling! Myth no 1 :

Positive Risk Reward Ratio

I.e. the idea that if your TP is twice (or thrice etc.) your SL, that somehow you are advantaged, that somehow this is a positive RR, as opposed to, say, neutral.

This is touted in every professional trading teaching course.

Well, if it were true, you could just open a random position every day, set your TP at 60 pips, set your SL at 30 pips, and just sit back and watch the money roll in.

Newsflash: it won't work. I know, I tried it! Well, actually, it does provide an advantage during very volatile days, in other words during newsdays. You pick, say, 12 pairs, open positions randomly (use a coin flip or whatever) (this will mean than in fact you will be opening positions that will contradict some other positions, due to pair correlation), prices will shoot up and down, and take out your 60 and 30 stops in a heartbeat. So positive RR does work, but only in those circumstances (though sometimes you may unluckily choose more wrong positions than right ones), but it's a really slow process, it only really works once or twice a month.

The negative Nancies out there might say that the strategy of positive RR will work if you got a strategy that's got an edge.

I say if you got a strategy that's got an edge, that edge will increasingly disappear the further away you put your TP. It's just common math! If your TP is twice your SL, it will take twice as big a "push" for price to reach your TP. And if you got an edge, it's only an edge if RR is equal, and will become less of an edge the further away you put your TP, because it will be that much harder for PA to reach it.

I could elaborate but I'm sure you got the point!

Myth no 2:

I trade pure Price Action

Really? Do you? Do you trade Renko charts? No? That's what I thought!

We all use indicators. There's no shame in admitting it. Everyone's doing it. Your mother's doing it. Your sister's doing it. Your grandmother used to do it.

In case there's any doubt about this, let me mention some of the most common indicators that all Price Action traders use.

By far the most popular indicators are M1, M5, M15, M30, H1, H4, D1, W, M.

What these indicators do is arbitrarily divide price into chunks of time. The only true times the market recognizes are the open and close of the week, but even then the real market doesn't stop (people still buy stuff during weekends, you know), which is why gaps happen. Therefore even the Weekly Open and Close are inventions created so that traders could get a decent night's sleep at least 2 nights a week!

To reiterate, price doesn't recognize time. Time is an indicator imposed on price, dividing it into neat little chunks. D1 isn't better than H1 any more than a 100 Moving Average is better than a 50 Moving Average. It's just another way we choose to group things.

Pure Price action is Renko charts.

Ironically, Renko traders customarily fill their charts with indicators, I guess the rationale being that the only reason their indicators don't work on normal charts is because normal charts don't show real Price Action. So...even the guys who trade pure price action don't trade pure price action!

Another popular indicator most Price Action traders use is the Moving Average. No, I'm not talking about the conspicuous MA you see on their charts (the 20 MA you see on Al Brooks' charts, for instance). No, what I'm talking about is far less conspicuous.

I'm talking about the 60 SMA all Daily chart traders use. Yes, all of them, because what is a Daily chart, other than a 60 SMA of the H1 chart?

Granted, a 60 SMA only shows the closing prices, whereas Daily charts show the high, low, open and close. Well, that just means 4 MAs instead of 1! That's 4 indicators on one chart!

Because one never is enough! Older Price Action traders will remember the simple good old days of trading with line charts, before all these new kids filled their charts with Candlestick indicators, thereby quadrupling the amount of indicators and the time needed to interpret them.

Now, I'm not saying Price Action trading doesn't exist. They've got a distinct methodology that is instantly recognizable. But they could just as well call themselves Support and Resistance Traders or Trendline Traders or Higher High and Higher Low Traders. Etc. They prefer to call themselves Price Action traders, and that's fine with me, as long as they don't bash the use of indicators! Cause we're all doing it in our private moments! Just admit it!

i hate this one in particular: "markets are fractal. it doesn't matter whether i trade off the 1m or w1."

Hey Myo!

Actually I tend to agree with that! That's one of the myths I wanted to tackle, the idea that lower timeframes have more noise than higher timeframes!

But I'm not totally sure that I'm right about that one. And there's no reason it should or shouldn't be that way.

We're all entitled to our own opinion (but not our own facts!), the point of this thread is hopefully to educate one another, or at least sow some seeds of doubt in our 'opponents' minds!

Now a days i am trading with Price Action system & it`s quiet good. i follow http://www.theforexguy.com you guy`s also can take a look.

Well, from what I can see it's nothing you can't learn online for free.

That's not true......................... I learned Kama Sutra online for free.

Can be dangerous ...

This is the only trading myth that I respect:

The Market Can Remain Irrational Longer Than You Can Remain Solvent

May be you guy`s right. As i am new i am trying to learn. By hook or crook i want to be a good trader. At this time i am trying to gather knowledge. And it`s quit help me so far

The biggest and most dangerous myth:

You can make a living from trading the forex.

Moving your stoploss to breakeven.

This basically means you put a buy order and a sell order in exactly the same place - when people do this, thinking they are right both times, it strikes me as bizarre. Also, once you are in a trade the market (and your account balance) doesn't give a shit where you got in, so your breakeven level is irrelevant.

I understand the psychological attraction of doing it though - I still do it myself sometimes, even though I know I am playing a mental trick on myself rather than improving my overall position.

And yeah the fractal market thing, I've argued about that here before

I'll close the trade when my stop loss is hit which could be at an important turning point/breakout.

i'll diversify my $10000 a/c.

The 50/50 probability BS. Its not 50/50. It is over trading.

I was about to post the opposite. You have the stage.

Absolutely .

You're probably right! If you think of it in terms of probabilities, what you're doing when you BE is giving price less room to breathe, which means more chances your SL will be hit. It might however be reasonable if this is just a case of trailing your stop, i.e. if you don't have a TP at all, and you're just trailing to see how far it will get you, and BE is just the first step of that.

Our biggest challenge indeed!

Mingary is right. But I have to submit my own contribution =" the trend is your friend".

It's a fair-weather friend as best, usually more like the "friend" who always comes over wanting to borrow stuff.