In this episode, you’ll discover 5 trading myths that have fooled most traders.
So listen to it right now…
Hey, hey, what’s up my friend?
In today’s episode, I’m gonna share with you 5 trading myths that fooled almost all new traders.
Myth #1: You can easily make money from full-time trading
You’ve probably heard something like this, “If you just trade 1 standard lot and you make 20 pips a day, you can make a full-time income from trading and that’s about $4,000 a month!”
Or you might be thinking, “EUR/USD moves an average of 100 pips, can’t you just take 20 pips out of the market? All you need is to make 20 pips from that 1 lot, and that’s four grand a month in the bank.”
Now, what’s the problem with that statement and that idea being presented to you? I’ll tell you what it is. So yes, on every trade, most currency pairs move more than 20 pips a day, some even more, depending on the volatility of the market.
And it might seem plausible that if a market moves 100 pips, I could make 20 pips on 1 standard lot, that’s about $200 a day. Multiply by 5 trading days a week that’s $1,000. Multiply by 4 weeks in a month, that’s about $4,000.
But the problem with that statement is assuming the market doesn’t change, assuming that your trading strategy will continue working. But here’s the thing, look at your charts. Is the chart always in an uptrend? Is it always in a downtrend? Is it always in a range?
One thing that you can agree on is the market is always changing. And for you to make a profit every single day or to make 20 pips every day, it’s assuming that the market doesn’t change and that’s how your trading strategy can make money consistently every day.
Is that realistic? The answer is no. The market always changes. And when the market changes, your trading strategy stopped working and that’s when you have to adapt to different market conditions.
How fast you adapt will determine how deep of a drawdown and you’ll go into. If you adapt slowly then clearly you will suffer a deeper drawdown. If you adapt quickly, then your drawdown will be much shallower. Make sense?
Don’t fall for this myth that you can make 20 pips a day with 1 lot and you can make a full-time income from trading. That’s bullshit.
Myth #2: The market trends 30% of the time
You probably know heard of this, “Oh, the market is trending 30% of the time, it’s in a range more than half the time.” I also thought that was true. I bought into this as well until I did my tests.
This was a test idea that I learned from Andre Unger who’s a world cup trading champion. He said that different markets have different characteristics, some trend better, and some have a mean-reverting behaviour.
He shared one simple test that you can do. Whenever the market breaks out of the previous day high, you buy one lot. And when it hits the previous day low, you sell the long position and you go short.
If you do this backtest for any market, for any currency pair, you will have a sample size of data to determine if the market has a trending behaviour or a mean-reverting behaviour.
If your equity curve is sloping up higher over time, it’s telling you that this market has momentum as it has followed through whenever it breaks above the previous day’s high, or whenever it breaks the previous day’s low.
On the other hand, if you have a market that has a mean-reverting behaviour, then every time it breaks above the previous day’s high, it’ll have no follow-through and will just revert down lower. And whenever it breaks below the previous day low, it’ll just reverse back up higher. That’s a market with a mean-reverting behaviour.
Different markets have different behaviour, some trend better, and some are simply mean-reverting in nature. So don’t trust that markets trend 30% of the time because that’s not true. It depends on the type of markets that you’re trading.
And that can only be done based on your research and your testing to find out for yourself.
But a couple of findings that I can share with you now is that, based on the daily timeframe, GBP/USD and GBP/JPY are trending markets, whereas AUD/CAD is a mean-reverting market.
Myth #3: The best trading strategy out there is the one that generates the most amount of profits
Well, that’s not true. You can’t simply judge a trading strategy based on the amount of profit that you make, because the amount of profit that you make is determined by a couple of things:
- The size of your trading account
- The amount of risk that you’re taking
For example, an account that has $1,000 you won’t expect that account to make $10,000 or $100,000 within a week. On the other hand, if you have a billion-dollar trading account, your P&L each day can be $100,000 or $200,000 and that’s pretty normal.
So don’t judge a trading strategy based on how much profit was made. It doesn’t work that way. On the other hand, some people might judge a trading strategy based on the percentage returns.
Let’s say we have two trading accounts, both are $10,000 each. One account made a 50% return, and the other account only made a 10% return. And you might say, “Oh, the strategy that made a 50% return is a better trading strategy.”
No, because it depends on risk management too. Maybe that particular person who was trading it had risked 50% on each trade and he only achieved a 1-to-1 risk-reward ratio, that’s how he is up 50%.
On the other hand, the other guy could be risking 1% on each trade and he made a 1-to-10 risk-reward ratio trade, so he made 10% on his account. Don’t just look at winning percentage because that alone doesn’t tell you anything.
So really, the short answer is that there is no best trading strategy out there. You can’t define what is the best trading strategy.
Ultimately you have to find a strategy that you’re comfortable with, which resonates with you so that you can trade it consistently given your circumstance.
Myth #4: Support resistance gets stronger on every test
If you read a lot of textbooks, forums or whatever, you’ll see them saying whenever the price tests support, the more times is tested, the stronger it becomes.
And that’s something that I can’t agree with. Because based on my trading experience, the more times support is tested within a short period, the weaker it becomes.
The reason why support holds is because there is buying pressure there. It could be huge institutions wanting to buy a certain amount of order at that price area. And the more time support is tested, that order gets thinner and thinner until it’s gone.
And when there’s no more order left to support the price, what happens? Well, support breaks downs. Think of it this way, imagine there’s a wooden door in front of you and you have a sledgehammer in your hands. And you smash the door 4, 5 times.
Let me ask you, does the door get stronger? Or does it get weaker? Well, the door would have a hole and eventually is going to break. And it’s the same thing as support.
The more times it’s being tested within a short period, the greater the likelihood it’ll break, although not 100%, but more often than not.
Myth #5: It’s not possible to make money in the markets
You’ve probably heard traders telling you, “It’s not possible to make money in the markets. Trading is a gimmick, forex trading is a scam!”
The reason why they say that is because they have to justify their failures. They failed to make money from the markets. And in order not to look stupid to themselves, they have to justify and say that it’s not possible to make money from trading.
And that’s their belief, to make them feel good about their failure. But here’s the thing, one person’s belief does not mean that it’s the truth. For you as a trader who is trying to make it in the market, don’t let the belief of a negative person affect you. Because that’s their belief, it’s not the truth.
So don’t let the failure of someone else justify your failure. Don’t use that as a reason. If you put in the work, if you go all out, you can find success in the markets.
It may not be the lifestyle you had expected, like the Lamborghinis, the hot chicks, the get-rich-quick schemes. But you would have a skill that allows you to compound your returns for the rest of your life. And that to me is success.
So don’t fall for the myth that it’s not possible to make money from trading because that’s just a person’s belief to justify his failure. Don’t let that happen to you.
With that said, I’ve come towards the end of today’s episode. I wish you good luck and good trading. I’ll talk to you soon.