What trading mistakes should beginner Forex traders avoid?
The difference between Forex trading and gambling is simply the presence of a credible and sustained strategy. Many Forex traders fail to do appropriate levels of research or prevent basic mistakes. The outcome is many trade as “gamblers” rather than actual investors. In this article, we will describe the most common mistakes that keep traders from becoming profitable.
1. Inadequate grasp of fundamental analysis
Many new Forex traders understand that economic fundamentals is what primarily drives currency rates. Rather than trading right after the news report when the market is most volatile, they are taught to only trade after the dust has settles. By doing so, they essentially miss the key time in which to earn profits.
2. Trading too often
Trading often with tight stops and tiny profit targets is actually not that safe and provides only very minimal profit.
3. Using too much leverage
Leverage is a two-way street. You may be able to “receive” more funds to trade with – however, this will also increase your risk. Trade realistically with the greatest possible risk you can manage.
4. Relying on Others
Real traders make their own decisions based on their own analysis and instinct and don’t rely on others to make their trading decisions for them. Either learn to make trade decisions by yourself as quickly as possible or rely entirely on others. Half and half does not seem to work.
5. Stop Losses
Putting tight stop losses and often is a great way to lose money. Once again it is one of those situations like trading often which seem safe but, in fact, counter productive. When you put on a trade, use a reasonable stop loss limit that allows your trade a fair chance to develop.
6. Abusing Demo Accounts
Don’t make the mistake of trading a demo account outrageously. Trade it like you would with your real money. Many new traders make the mistake of trading in a way that would be unrealistic on a live account and then thus, have unrealistic expectations and losses.
7. Don’t trade during off hours
Bank FX traders, option traders, and hedge funds have a huge advantage during off hours. When the volume is down big players can alter the market when no volume is going through and the end game is that new traders have even less of a chance of success. There is only one signal during off hours – stay out.
8. Not focusing on the Pair
Novice traders often only analyse one currency rather than analysing the currency pair. Expertise on only one side is, more often than not, ineffective and dangerous. You must do technical and fundamental analysis on both currencies. It takes two to tango.
9. No Trading Plan
A trading plan is a strategy for trading success; it spells out the competitive edge of the trader. If you don’t have an edge, and your edge has not been tested carefully, you will likely end up as a statistic (part of the 95% of new traders that lose and quit).
10. Trading Against A Prevailing Trend
There is a huge difference between buying cheaply on the way down and buying cheaply. What a trader thought was the low price can quickly end up being the high price if the downward trend continues. Make sure you get the direction right.
Take on these tips and see if any of these habits are part of your trading. Adjust if need be and trade with the bigger picture in mind.
Look out for Part II with more tips to come.