Both the general public and those who are aspiring to start trading Forex believe in the ”’Forex made me rich” tales. Not only are these misconceptions incorrect, but they can also hold you back if you are seriously looking to learn what trading is all about and how to actually make money as a trader.
So today, I want to clear some things off your mind, just in case you are one of those who believe in these incorrect assumptions. Yes, Forex made me rich. But there are some realities that you need to be aware of in order to actually prepare yourself psychologically on how money is made in Forex and Cryptocurrency trading.
Forex Made Me Rich Quickly and other misconceptions
Myth 1: ”Forex Made me rich quickly”
Truth: I did not become rich overnight, I learned not to lose money first
Beginners always think that trading Forex, Cryptocurrencies, Stocks and so on is always about fast cash, taking high risk, fancy lifestyle and many of the things which are associated with luxury.
Well, you might blame fraudsters who propagate this kind of message in their marketing.
The truth is that if you want to make money, stop focusing on Forex made me rich stories and instead get appropriate training on how not to lose money as a trader.
Forex trading is all about preserving your capital rather than building it quickly. I know this is contrary to what you have always believed.
However, it’s the gospel truth as I have witnessed it over and over again in my 7+ years of trading career.
In this article, I highlighted how not trading at all is considered one way of preserving your capital.
While I trade the market, I always keep in mind Warren Buffet’s rule number 1 which says I should never lose money.
But how do we ensure that we are not losing money as traders? By becoming risk managers and taking control over ourselves.
You are probably your worst enemy when it comes to trading. In the face of constant temptation to enter the market even when your strict criteria for trading has not been met, you may find yourself not following your trading routine at all.
The first opponent to defeat is yourself. Then you can focus on defeating the rest of the participants in the market. You do it by not losing money.
Myth 2: Only Wall Street folks can make it
Truth: Trading is a skill for anyone
Trading is a skill that can be acquired. You need training to learn and horn your analytical abilities. Then you need practice to learn how to listen to your gut feeling on which trades to take and which ones to ignore.
Most of the time, only trades that agree with my gut feeling and analytical insights will be winners. Those that don’t align with either my gut feeling or analytical insights often turn into losers. And guess what, I have never worked at Wall Street and I still make money as a trader.
Myth 3: You must always watch the market and time it every second of the day
Truth: It’s about reading the charts from left to right, and that doesn’t even take 20 min of your time
Many people think that those who make money as Forex traders know how and when to catch market turning points.
But that is just another misconception. I do not spend time reading the market or trying to find out where the market is turning.
Do not confuse this with technical analysis. We, price action traders, don’t overthink, over-draw lines and other things on the chart just to determine where we can enter and exist a market at.
We read the story of the market. Then we look for any price action entry signal that is in line with the story of that market.
This often involves reading the chart from left to right while trying to figure out how any support, resistance or trends might affect the story of that market.
Myth 4: Successful Forex traders need a lot of money to trade
Truth: Any amount of money is good provided your broker allows it
A few weeks ago, I wrote an article citing recent regulations that threatened to limit the amount of leverage that Forex brokers would give their clients.
If you have low leverage, you will need a large trading account. But leverage is not the only factor that is affecting your results.
To dispel this myth, I should let you know that we don’t always need a lot of money to become successful Forex traders.
However, if we start with a lot of money and have acquired the right training and practice, we can get there quicker than if we started with a small account and had all the training and practice.
Don’t get me wrong. Any skilled trader will do well regardless of his account size. On the other hand, any poor trader will lose money on a big account just as fast as they would lose it on a small account. What matters is skill.
Myth 5: You must have a win rate of 80% or more in order to make money
Truth: Even 30% win rate is enough to make you money, lots of it
I am not right 100% of the time. In some months, my win rate can be as low as 40%. Other time, it is 60% or more. But generally, I can say that I win 50% of my trades on average.
You might think am crazy because there is no way 50% win rate can make money because this is break even mark.
Well, there is something called risk reward ratio. The better your risk reward ratio is, the more your winners will maximize their wins to cover any previous losers that you might have made. At the end of the day, you make money even if your win rate was just 30%.
The Forex trading reality is that you can gamble with the market if you like. But the other reality is that you can choose to trade like a professional who is diligent and calculating.
If you are wondering how to make this a reality in your life, I implore you to get yourself proper education and practice first.
Let me say this. Anyone who has taken my course can easily make a full time living trading Forex, Cryptocurrencies, stocks etc with an average win rate of 35-65%.
Do you know that you will never even have a win rate of 10% when you play at the casino?
Trading is therefore much better because we still make money.
What am saying here is that trading can feel like participating in a casino if you allow it to. On the other hand, you can build your skill and mental fortitude to become one of the best traders around. You can ultimately say ”Forex made me rich’
Author: Warren Ouma
Warren Ouma is a highly regarded Trader, Author, Critique, Blockchain analyst, Investor & Coach with over 7+ years experience trading the financial markets. He currently mentors students from various parts of the word. In 2014, Warren won the Million Dollar Trader Competition, achieving an impressive 250% return. Warren regularly contributes to well known financial websites and publications including Valforex.com, Investing.com and MoneyShow.