Don’t Believe The Trading Myths http://www.netpicks.com/dont-believe-the-myths/

Like many of you, I started trading by picking up pieces here and there

through books, internet and the many forums that populate cyberspace. The

absolute worst were the forums.

I admit there were a few good things but overall, it was fluff and those that wrote it, usually were changing their

systems/strategy/method after someone would post their own trading

information.

Trading books, in general, were simply a rehash of the basics with a little twist tossed in. Actually, some had no twist

but just the basics explained a little differently.

If you are going to enter a profession, don't you owe it to yourself to at least arm yourself with proper knowledge?

Look at it this way (this is how I did anyhow):

You are entering a profession where you can make a lot of money.

You are entering a profession where some traders trade 10, 20, 50 million

dollars at a time!

You are entering a profession where the weak and uneducated are culled

from the herd.

I can remember when the shoe dropped for me and I decided that I needed to think and act like a pro.

Before I share it let me just say that it was not something that turned me

into a mega profitable trader (still working on that actually).

You have seen those ads, right? The ones where some "ex-banker" has:

"Designed A Trading System A Monkey Can Trade"

The realization that this is a profession that does not come easy and that the promise of easy riches is an absolute myth, made me rethink my course of

action.

It was a revelation that most have no clue what they are talking about and seeking out trading experience and knowledge from a professional and

from what works in the markets, were crucial to any advancement.

Let's look at a very popular indicator that often times gets slammed in

trading forums.

Are moving average lagging indicators?

Yes? No? Depends?

The common answer you probably see on the forums is yes; they are lagging

and moving averages are useless because price has already moved by

the time the MA catches up.

If you gave that answer you should be front of the line for trading education from reputable sources because you

have bought into a myth. I am going to answer the question

with a chart showing a currency pair in a downtrend.

This is a moving average crossover system and as you can clearly see, yes moving averages lagged price because they need past price to calculate their

current position.

As a matter of fact, the M.A. crossover method got you in the market at

horrible times as the market makes a lower high and then rolls over! It gets

you in long after the move has occurred and you suffer through a

retrace.

So yes, they certainly are lagging. But are they useless?

It depends on how you use them as a

part of an overall trading method.

This is the same chart with the same moving averages. Instead of using a

crossover system, I am using the moving averages as dynamic support

and resistance.

Before I go on let me say that moving averages are NOT barriers to price but only work if many eyes are seeing the same thing. For me, they frame the

market as opposed to being a standalone trading system.

You can see how price respected both of the averages. Depending on how you play these, there are at least 4

opportunities to short this market as shown by the boxed area! Could you have traded this? You bet you could

have.

So in this case, that trader who said with a definite tone that moving

averages were lagging and useless did you a great disservice as they are only

partly correct.

For those that are looking for an entry using this type of pullback framework, they are a few you can use. You can look for the break of mini ranges or

failure tests of a range. Whatever you choose to do for a trade exit, the key is

to ensure you do it consistently.

Not everything you read will be useless and due diligence in testing

whatever you read is extremely important. What you read can actually open a door to a different method of trading for you because you learned

something new about market mechanics during your testing phase.

But you have to know upfront that there is nothing easy about trading.

The act of trading is simple and so are many trading systems that have an

edge in the market. It's all the extras where people run into problems:

Risk Consistency

Emotions

One piece of advice I would offer to you is, yes, you can learn all of this on your own through trial and error, but

shorten the learning curve. If you are able to locate someone who makes this their living and is willing to cover "what they know", take them up

on their offer.

You could also invest in a trading system with a proven track record and

a strong support team to help you carve out a place in the trading world.