6 Trading Myths You Think are True on IQ Option
By IQ Option
An awful lot of books were written about trading in the financial markets. Although, traders are still getting misled about the real situation in making money by trading online. In this article, we gathered the most common myths about financial markets, and we’ll try to uncover most of them, bringing some light to the matter.
Official statistics provide sad figures as 95% of newbies lose the initial investment in the financial market. However, every single beginner thinks that he’s the lucky one to get into that 5% of people able to become a profitable trader in the long run. What’s more, beginners bring their money into the market with a hope of making millions out of a couple of hundreds as myths spread that the financial market is kind of magical Eldorado. Most of the beginners are not intended to apply efforts in getting knowledge and gathering experience on how to make money in the market as that’s exactly the thing which allows traders to survive in the market. They truly believe that trading online is sort of playing a game but not a hard job. Profitable traders with decades of experience keep spending a lot of time for learning and constantly improving their trading skills as that’s the only way to keep fingers on the pulse of rapidly changing financial world.
1. Traders can easily make lots of money
The financial products offered by the company carry a high level of risk and can result in the loss of all the funds. Traders should never invest money that they cannot afford to lose
2. A trading plan is not necessaryAnother mistake is related to a common opinion that traders should not follow the market and develop their own opinion about processes happening there. Most people suppose that the flow of information provided by brokers, trading signals from market gurus and automated expert advisors would point to profitable trading decisions. That trap leads to the lack of a trading plan based on a certain strategy with individual financial goals and a precise algorithm to follow. There must be an exact list of conditions when traders should consider entering the market and opening speculative deals. The same way exit strategy should work as beginners often close positions too early or too late, facing losses instead of profits. Most of the experienced traders note that a long period of seven years is required to get all of the knowledge required to obtain necessary skills for this profession. Trading is a hard job to do.
Some beginners compare financial markets to an evergreen forest with endless gifts, and what they need is just to gather fruits from trees. Some traders think that some assets could endlessly grow, adding value forever. Thats exactly what happened to the cryptocurrency market at the end of 2017. The crypto rush led to the bubble, which had blown up, affecting the bloodbath sell-off with billions of dollars of losses. Financial instruments must have healthy retracements from time to time, and that’s the main law of the market.
3. Evergreen assets exist
4. Hedging is not neededOne more story is based on an opinion that there’s no need to hedge risks, and it’s possible to work with one single instrument in the trading portfolio. Such an approach leaves open-ended positions with no protection from a sudden market’s plunge or shift in the global trader’s sentiment related to some unpredicted fundamental factor. For example, U.S. President Donald Trump announces import tariffs for Mexican goods, and Peso drops versus the U.S. dollar in a blink of an eye, while safe-haven assets surge. If a trader had the only speculative position for USD/MXN with no stop-loss order, his account would have been blown up instantly. Risk diversification is one of the most essential sides of daily job for a trader.
Each professional and novice trader wants to get 30−60−120% profit monthly. At the same time, few people understand that any plus is done “through a minus”. For example, if a trader has a clear setting to earn more than 100% per month, the drawdown can reach 60–70%. At the same time, he will probably need to inflate the volume of transactions and trade without a stop. Is everyone cool enough to work in this mode? The trader must adequately assess their potential and operate not with monthly but annual indicators of profitability. When transferring months to a year, he will immediately find out that 4-6% of profits per month will give at least 48% per annum in foreign currency, and the permissible risk will not exceed 2-3% of the portfolio volume. It is important to be in the black in the long run - six months, a year or more. This can be achieved only by a competent and adequate approach to trade and risk control.
5. Monthly withdrawal is the main target
It is impossible to work without the risk in the financial markets. This is one of the most high-risk areas of activity. It requires awareness and a trading system with a clear mathematical model, their lengthy lapping and running. To develop them in one month will not work. In addition, although few people pay attention to this, constant work on oneself is important for the trader. You need to constantly train and “through the pain” to gain invaluable experience.
6. Trading won’t hurt
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