The Internet engendered the online trading phenomenon. One can trade anywhere there is a connection to the World Wide Web. The result has also been the creation of instant experts, trading gurus who offer modern versions of snake-oil cures for traders. The web is flooded with trading alerts, systems, and blogs that promise returns that will lead to instant wealth.
Welcome to the world of forex trading. Forex is the largest market in the world. Forex traders exchange $4 trillion each day, but is forex the best market for you? The answer depends on what you are looking for. If you want a market that never sleeps, if you want the opportunity to trade at any time of the day, if you would like to make a boatload of money in a short amount of time, forex may be for you (it should be noted that you may also lose an incredible amount of money in a short amount of time). Traders with very little money can begin trading forex. In forex, you may take relatively large trades with small amounts of money because of the favorable leverage requirements. There are many reasons to become a forex trader, but before jumping into the reasons, perhaps we should take a closer look at the characteristics of a forex trade.
A QUICK LESSON IN CURRENCIES
“Forex” is simply an abbreviation for “foreign exchange.” All foreign exchange transactions involve two currencies. If an individual trader, a bank, a government, a corporation, or a tourist in a Hawaiian print shirt on a tropical island decides to exchange one currency for another, a forex trade takes place. In every instance, one currency is being bought and, simultaneously, another currency is being sold. Currencies must be compared
to something else in order to establish value; this is why forex trading involves two currencies.
If you and I go to the beach and I tell you the tide is low right now, how do you know this is true? You may decide to compare the current water level to the pier. If there are starfish and mussels exposed on the pier, you may believe me because you can compare the current water level to the previous water level. In forex, we compare currencies in much the same way, currencies are traded in pairs and, thus, one currency is always compared to another currency.
It may sound surprising, but it is true. If you start making money trading forex over several months, you will join the winners. Your retail forex broker will begin to hedge your trades. In other words, if you are in the winner group, your retail forex broker will take trades in the real forex market, the interbank market, to offset the profits accumulated by the winner group. For example, if most of the traders in the winner group have decided to buy the EUR/USD, then the broker will put in a trade to buy the EUR/USD in the interbank market in the hopes that, if the winners are correct, the forex broker can use the profits in the interbank market to pay the winning traders. This is how your retail forex broker deals with winning traders and make huge amounts of money
Unfortunately, most forex traders lose out. Understanding online forex trading is very important for profitable trading as it is reserved for the select few. Expectations drive reality for many things in life, and successful trading is no different. Most forex traders have three preconceptions about successful trading. These are the three myths of successful trading, based on each of these myths.
Myth 1: Successful trading must be indicator based. There are many ways to profit in forex, some of them do involve indicators, but indicators are not necessary for successful trading. There are professional traders around the globe, many of them good friends of mine, who use “naked” charts to make trading decisions.
In some ways, indicators delay the progression of the trader because the focus is on the indicator, rather than price action. Indicators become the scapegoat for losing streaks and often keep losing traders in a holding pattern. It is much easier for the novice trader to begin trading without indicators from the beginning.
Myth 2: Successful trading must be complex. These systems are incredibly simple. Do not confuse simplicity with ineptitude. Although these systems are simple when applied correctly, they may also yield big profits and build confidence in your trading.
Myth 3: Successful trading is dependent on the trading system. This is probably the most widely held belief among traders. This is precisely why there are thousands of trading systems on the market, all promising great riches to the brave traders who pony up the money for the next Holy Grail. Many veteran traders understand the importance of trading psychology. Personal beliefs and attitudes toward risk are the greatest predictors of trading success, and the trading system is not nearly as important as many traders assume. For most traders, after years of trading, this fact becomes apparent.
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