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Twelve widely believed forex myths

  • #41
  • May 4, 2011 4:38am May 4, 2011 4:38am
Excellent thread, there is another very common myth I would include - that moving stops in relation to entry points somehow affects the bottom line. I see these mantras bandied about all the time - move s/l to breakeven as soon as possible, lock in profits, never let a winner turn into a loser. I know some very experienced and successful traders believe firmly in this approach but I don't care how much money they make, it is still gamblers fallacy. At any given time, our position in the market (including the position of stops and limits) should be a direct reflection of where we feel the market is moving or going to move. This has absolutely NOTHING to do with where we entered the trade.
si hoc legere scis nimium eruditionis habes
  • #42
  • May 4, 2011 7:14am May 4, 2011 7:14am
If you have an edge, the other very important thing to have is discipline. Taking partial profits, moving the stoploss to breakeven or any other method invented to reduce the amount one can lose on a trade or sequence of trades, have the effect of smoothening the equity curve. If you don't think that's vital then probably you don't know how a healthy profit curve looks like.
  • #43
  • May 6, 2011 9:35am May 6, 2011 9:35am
nice post, very insightful for a newbie like me!
  • #44
  • May 8, 2011 9:59pm May 8, 2011 9:59pm
Quoting numbnuts
Excellent thread, there is another very common myth I would include - that moving stops in relation to entry points somehow affects the bottom line....
Agreed: you've extended the points I was making in myths #2, #5 and (the second paragraph of) #7. MM can not provide a technical edge, but it can be used to smooth income by rebalancing return and risk. The trader's P/L has no bearing on current or future market probabilities or behavior.
  • #45
  • Jan 14, 2013 12:53pm Jan 14, 2013 12:53pm
Myth #5. That it's impossible to forecast price direction.
Every trading decision (e.g. entry, exit) ultimately reflects an implicit forecast, or at least a forecast on the basis of probability. The more accurate one is at adjusting one's position relative to market turns, the more pips one banks. If it's impossible to determine directional bias, or at least some kind of behavioral bias, at some points in the market, then it's impossible to have any kind of edge.

Of course it's possible to have an edge, but be oblivious to the fact that it comes from your ability to 'read' the market.

I actually tried to put together a mechanical strategy that was based on the fact that I couldn't really forecast the market. It was a simple BO strategy and after back testing it held up where either I would have a winning trade or I would break even. That lasted for 6 months until it died. It still works sometimes but I would never use it again.

I really believe that you have to be able to read the market to some degree.
  • #46
  • Edited Apr 12, 2015 5:06am Apr 11, 2015 6:01am | Edited Apr 12, 2015 5:06am
Taking partial profits is never ok. It never increases your expectation. It basically means: I think I still have an edge so I dont want to exit but I am pussy and I am afraid to risk the full amount. Do the math. Math will tell you its never right from an EV point of view to take partial profits.

You should only move to break even if you think that is the point where your edge ends. Otherwise its stupid.

A big myth is I cant win with small RR but I'll win with bigger RR. No. If you can't win with small RR I will tell you you have a losing system. Large RR can turn a profitable system into an even more profitable system but it doesn't turn a losing small RR system into a winning one (I'm not talking about really tiny RR that don't even cover the spreads, swaps). But it you're losing with 0.5 RR I can assure you you'll also lose with 4:1 RR. In theory it could happen that someone loses with 0.5 RR and win with 4:1 RR but this only means HE DIDNT ENTER WITH AN EDGE and he SHOULD HAVE DELAYED HIS ENTRY UNTIL THE EDGE STARTED. The first 0.5 RR didn't have any edge so put a stop order instead of entering so early. From the moment the edge starts you should make a profit with 0.5 RR if you really have a winning system. However the traders who like large RR are usually right to prefer those large RR instead of small RR because it's logically to enter a trade when you think the edge begins and only exit when you think the edge ends. Usually large RR traders are more profitable than small RR traders but the small RR traders should still have a profit if the large RR system has an edge (the large RR traders win more because they exploit the full edge and they don't win because of their RR, they win because they have a winning system).
  • #47
  • Apr 22, 2015 10:52am Apr 22, 2015 10:52am
Regarding Myth #15: "That profitable trading is 90% mindset." I kindly disagree, ones consciousness is the most important as the trader itself is the captain at the helm, so system or MM is just as good as he is.

Wire yourself for success and you'll "naturally" gravitate towards the system and MM that actually fulfills your objectives. Stay wired for failure or limited money/wealth setpoint and you find a way to "sabotage" yourself. Lottery winners are great example, many actually loose it all soon, under couple years.

And how can you code great EA if you yourself aren't wired for success/profitability and thus aren't able to trade profitably? Same for MM.

Can one actually trust what one sees & the way one perceives informations? Wouldn't one be tempted to turn the EA off during DD? Would somebody unable to handle himself facing fear & greed be able to actually let the EA running doing it's job? Wouldn't one be tempted to increase positions being greedy?

I'd say that even if somebody would give one great profitable system with great MM, majority would still screw it sooner or later. That's my own experience. Cause traders are the captains at the helm..or they should be..

It's without question that having great system & great MM helps a lot. But you still gonna be ok consciouss wise with where you are moving. And having great system & great MM can make you bunch of money pretty quickly or with minimum time investment. And that's level of ease not many are actually willing to receive. And I get that it might sound really weird. But people do actually love to complicate stuff.. That's why only minority succeeds, not only in trading..
Markets wispers, just tune in.
  • #48
  • Apr 22, 2015 10:58am Apr 22, 2015 10:58am
Quoting numbnuts
Excellent thread, there is another very common myth I would include - that moving stops in relation to entry points somehow affects the bottom line. I see these mantras bandied about all the time - move s/l to breakeven as soon as possible, lock in profits, never let a winner turn into a loser. I know some very experienced and successful traders believe firmly in this approach but I don't care how much money they make, it is still gamblers fallacy. At any given time, our position in the market (including the position of stops and limits)...
I'd say that one gotta ultimatelly find out what works for him. If that's something that works for them, if that's something that helps them get/stay calmer and thus perform better read the market/following their plan. Why not?
Markets wispers, just tune in.
  • #49
  • Apr 22, 2015 1:01pm Apr 22, 2015 1:01pm
Quoting plukin
Regarding Myth #15: "That profitable trading is 90% mindset." I kindly disagree, ones consciousness is the most important as the trader itself is the captain at the helm, so system or MM is just as good as he is. Wire yourself for success and you'll "naturally" gravitate towards the system and MM that actually fulfills your objectives. Stay wired for failure or limited money/wealth setpoint and you find a way to "sabotage" yourself. Lottery winners are great example, many actually loose it all soon, under couple years. And how can you code great...
You should re-read myth #15 carefully along with Hanover's comments. Being a good trader requires good psychological skills, but psychological skills alone won't make you a good trader. A lot of people are being misled by thinking that it's the psychological aspect of trading that's holding them back when in the vast majority of cases these folks quite simply don't have an edge. You can wire yourself for success all you want along with developing great money and risk management techniques but if you don't have an edge those things won't be of help. The only thing they'll do is let you kill your account in a slow, methodical and emotionally calm manner.
  • #50
  • Apr 23, 2015 4:37am Apr 23, 2015 4:37am
Quoting EnoFX
{quote} You should re-read myth #15 carefully along with Hanover's comments. Being a good trader requires good psychological skills, but psychological skills alone won't make you a good trader. A lot of people are being misled by thinking that it's the psychological aspect of trading that's holding them back when in the vast majority of cases these folks quite simply don't have an edge. You can wire yourself for success all you want along with developing great money and risk management techniques but if you don't have an edge those things won't...
Ok, do you actualy understand what I write about? The dept of it? Did you actually consider "What if there's something onto it?" before jumping to conclusion? Btw those conclussions of yours, are they backed up by a research or are you just guessing? What I write about is my own experience that's changing surprisingly lately and also observing people others with an open mind. And what I write about actually requires an open mind to even just consider it for a brief moment.. And that's something only minority is able to do, at least for now.

Take Jesse Livermore for example. Did he had profitable mindset? Did he had good system? Did he had good MM? I would say he did have the later two, but they were just natural progression of his journey as a trader.

I'd say he didn't have profitable mindset, at least not fully at all times..he lost fortune many times and died basically broke. So, the way I see it, he was ok with profits and success to an extent. As he didn't addressed this, he found a way to sabotage himself and give what he make away to the point he was ok with it..and then he started again. And so forth..till one day he just got tired of all the boom and bust and stopped going for it.

Same with many succesful individuals, as they aren't ok with the wealth, success, ease, being in the spot light etc..they find a way to just sabotage themselves.

And that's why I stress the importance on being actually set for success/profitability. Cause when you are trully OK with were you are heading..then the rest just naturaly shows up, "magicaly"..the edge reveals itself where there wasn't any in the past. You either find out MM that works for you or you bump onto some that fits you..

But the point is that all this is just an extention of you. And as long as you aren't OK enough with the ease & wealth & standing out, your moving forward won't be as smooth as it can be. And you might try too hard to find or perfect an edge or MM, while in reality it's just You not really ok with where you are heading.

It might be difficult to understand what I write about, but the difference is like between "you have to fight to win" vs "you win by simply choosing to win". Doesn't make sense right?

That's what Neo (Matrix movie) did when he decided to face "unbeatable" agent Smith.
Throughout the fight, he not only realized he can fight him with greater ease but he started to see the code of the matrix..and suddenly there was no reason to fight Smith any longer as Neo could just rewrite the code and turn that threat off and that's what he did. Game over. Success. Victory. Off to something else.

So, set yourself for success deep enough and the rest that's actually required for it to happen basically becomes piece of cake, natural, easy even effortless. You'll experience all the pieces of the puzzle to "magicaly" fall into their places.. Can you imagine that? Maybe you can't but just feel into that..
Markets wispers, just tune in.
  • #51
  • Apr 24, 2015 12:22am Apr 24, 2015 12:22am
Quoting plukin
{quote} That's what Neo (Matrix movie) did when he decided to face "unbeatable" agent Smith. Throughout the fight, he not only realized he can fight him with greater ease but he started to see the code of the matrix..and suddenly there was no reason to fight Smith any longer as Neo could just rewrite the code and turn that threat off and that's what he did. Game over. Success. Victory. Off to something else. So, set yourself for success deep enough and the rest that's actually required for it to happen basically becomes piece of cake, natural,...
Beauty analogy, very powerful psych aspect. Love seeing your perspective.
Learn, a forex trader must, unlearn and relearn he will.
  • #52
  • Edited 11:44pm Jun 5, 2015 7:11pm | Edited 11:44pm
I 100% agree on these, hanover. Here's my take on them.

Quoting hanover
Myth # 2. That MM (and sizing variations, nedging, scaling in/out, etc) can in itself provide a winning edge.
I don't understand how traders give a majority of their success because of MM. If their trading plan is bad, no MM technique is going to save your ass in the long run.
MM is a multiplier to how much you win or how much you lose. A multiple of 0 to any number is still 0.

Quoting hanover
Myth # 6. That taking high RR trades will in itself guarantee success..
They miss a very important equation here which is win % or probability of profit. Buying a bottom is a very high RR trade. Maybe a 10: 1 trade but the chances of it working is let's say 5%. Compared to the same 10:1 trade with 30% probability of profit, its a totally different trade.

Quoting hanover
Myth # 15. That profitable trading is 90% mindset.
I feel this is so wrong. A good mindset won't save you if you're trading plan is bad. A trader can have the perfect traders mindset (e.g: cutting losses short, taking losses is part of the game, >3:1 trades, don't trade against the trend, etc etc) but if their trading plan is bad nothing is going to save them in the long run.

The core of trading I believe are skill and experience. Mindset is the complementary core that makes a trader successful.

Here' an analogy, 2 restaurants. Restaurant A and Restaurant B.
Restaurant A has a good environment but bad food.
Restaurant B has a bad environment but good food.
Which would you pick? I would pick B because I go to a restaurant to have good food 1st, environment 2nd.
In restaurant, the core is how good is their food not how good their environment is.

It's the same in trading and every other profession and business.
The core of artists are their paintings not their mindset.
The core of music producers are their songs no their mindset.
The core of comedians are their jokes and charisma not their mindset.
The core of plumbers are how good can they fix leaks not their mindset.
The core of traders are skill and experience in the markets not their mindset.
The mindset is a complementary core that makes someone successful not the main core.
A good mindset alone doesn't bring success.
  • #53
  • Jun 5, 2015 9:41pm Jun 5, 2015 9:41pm
Quoting hanover
Twenty widely believed forex myths I would have saved myself a significant amount of time and money if I'd understood the following, when I first started out: Myth #1. That inverting the signals in a losing strategy must necessarily make it a winning one. Any strategy that fails to exploit a real market inefficiency is effectively generating random signals. Inverting a random signal generator will only create yet another random signal generator, which will therefore be equally ineffective. Myth # 2. That MM (and sizing variations, nedging, scaling...
The fact that so many view these as myths highlights the gross widespread misunderstanding of the markets. If you view even one of these as a myth then you are in a mindset that will prevent you from ever being a successful trader. These myths are all part of the conventional retail trader's way of thinking that all the brokers perpetuate with their plethora of indicators all designed to reel you in and take your hard earned cash. Market structure, price action, supply/demand and support and resistance are the keys to successful trading. If you are trying to understand the logic behind these popular myths then you are wasting your time and money trying to be a trader.
  • #54
  • Jun 14, 2015 5:46pm Jun 14, 2015 5:46pm
Quoting hanover
Myth # 14. That it's preferable to focus on one or two major pairs. Not necessarily. Pairing the most negatively correlated currencies (the strongest against the weakest) gives one the best probability of catching strong, clean moves. This applies due to the triangular equilibrium (e.g. GBP/USD x USD/JPY = GBP/JPY) that is always maintained. Hence if GBPUSD and USDJPY are both trending upward, then GBP > USD > JPY, and hence GBPJPY will be trending upward even more steeply. {file}
Cant overstate how important this has been to my trading over the years, if even I wrote a forex101. This would be right up there.
  • #55
  • Nov 12, 2015 6:27am Nov 12, 2015 6:27am
22. High Win Ratio is the strongest indicator of a profitable trader
As Above, So Below
  • #56
  • Nov 12, 2015 7:39am Nov 12, 2015 7:39am
I will contribute by stating definitively what does constitute an edge.

1. Trading with the trend.
2. Diversifying your risk.
3. Managing your risk of ruin.
  • #57
  • Nov 12, 2015 11:52am Nov 12, 2015 11:52am
Thank you hanover.

Many of these are why I have been in trouble of late in the financial markets.

KILL THE POLLUTION - KILL IT WITH FIRE.
  • #58
  • Nov 12, 2015 11:58am Nov 12, 2015 11:58am
Quoting Winston Reed
{quote} Market structure, price action, supply/demand and support and resistance are the keys to successful trading. If you are trying to understand the logic behind these popular myths then you are wasting your time and money trying to be a trader.
Amen
  • #59
  • Nov 12, 2015 12:32pm Nov 12, 2015 12:32pm
Quoting hanover
Myth # 8. That it's better to miss an opportunity than experience a losing trade.
If I miss a 30 pip win then my annual bottom line is 30 pips worse off than it would otherwise have been.
If I make a 30 pip loss then my annual bottom line is 30 pips worse off than it otherwise would have been.
I don't really agree with this point. If I loose 30 pips of my capital and I will not be able to enter another trade due to balance restrictions I am worse of than just missing an opportunity. (To be fair this is a very special case).
I don't really like the wording of this myth and it comes down to the definition but simply saying this was an opportunity you missed which is exactly as bad as having an actual lose simply does not cut it for me.
I loose opportunities worth of many hundred pips every day by just not trading but I am still better off not taking the trade if the chances of success are not sufficient. In the long run not taken opportunities and losses will even out IF and only IF the probability of all the opportunities are the same but that simply is not the case and sometimes missing a trade in order to choose a better entry is a valid strategy.
  • #60
  • Edited Nov 13, 2015 12:48pm Nov 12, 2015 4:51pm | Edited Nov 13, 2015 12:48pm
Quoting Kilian19
I don't really agree with this point.........
When I included that one in the list, I expected that it would be controversial.

I believe that the assertion that missing a 30 pip win means that your P/L will be 30 pips less than it would have been had you taken the trade, is valid mathematically.

However, even if price subsequently moves X pips from an arbitrary point, that lost 'opportunity' does not automatically equate to missed win of X pips, because at the hypothetical time of 'entry' there was no guarantee that price would subsequently behave that way. Hence the 'myth' fallaciously employs the perspective of hindsight, and I (now) believe that you're correct.

If 'opportunity' means 'valid setup according to your strategy', then although there's no guarantee that the lost opportunity would have resulted in a win, presumably you would have been better off (on balance of probability) if you had taken the trade.

Anyway, thanks for pointing this out. I will update the list accordingly.

BTW, you can save yourself a keystroke.

Quoting tashkent
22. High Win Ratio is the strongest indicator of a profitable trader
Agreed (that this is a myth).
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