Foreign Currency Exchange Trading can be one of the most lucrative investments anybody can make. There are a great number of advantages of trading Forex… it is a 24/7 market, most of the trading is electronic, you can use a massive amount of leverage to increase your potential gains, and much more.
On the other hand, there are common mistakes that seem to be made by each and every rookie foreign exchange trader and sometimes even the pros.
You might ask yourself, how can I avoid these pit falls and how do I identify them? Well, I am trying to do something different with this article, I am going to explain to you one mistake and then a option, then another mistake and another solution and so on.
Over Trading:
I ‘m sure a number of us have been told about this one, but if you haven’t please allow me to explain. Over trading happens whenever a currency trader is looking for trading alternatives that aren’t really there. I have heard it all, “But if I trade more I will make more faster”, “If this trading strategy works it will make money even if I trade it on 15 pairs”, “trading a lot of pairs doesn’t affect money management”... I could keep going for hours.
The reality: over-trading is the major reason why a large number of traders lose money. Trading the Forex can be tricky and it is easy to get puzzled by the massive amount of information that is available over the internet (the problem is that most of this information is wrong!).
The Fix: The best way to become a lucrative foreign currency exchange trader and not over-trade is to have a trading plan; every single effective trader I have met has one. Having a trading plan can enable you become a more disciplined trader and of course a much more successful one. This takes me to the next common mistake.
Not having a trading plan: I have been trading and building Forex strategies with some of the wisest and most productive foreign exchange traders in the USA and around the world, and I have NEVER met any profitable trader without a trading plan or that just trades what looks good.
For instance, when a particular person wants to get a loan from a bank to launch a business one of the most essential documents that the bank will ask for is a business plan. Why? They don’t want to lend money to someone who doesn’t have a clear idea of what to do with it. The same happens in Forex.
You can be a very talented trader and have the best tools and resources but if you don’t have a trading plan you won’t be able to put it all together. Get it?
Picking tops and buttons:
Numerous new traders try to pinpoint and identify where a currency pair will turn around and go the opposite direction, this is a enormous mistake. Picking tops and buttons is a incredibly tricky task and even when it is done the right way you might still get an generic result.
The best method to not make this mistake is to stick to your trading plan and trading strategy. Hot tip: if your trading strategy is dependent on reversals (tops and buttons) make sure that you demo trade for at least 3 months before you send your money to your broker.
Making decisions based on emotions:
Emotions control, or at least impact everything we do and think, but unfortunately being emotional in Forex can very expensive.
Foreign currency exchange trading is a quite challenging arena and when you trade the currency market you are trading against some of the best minds in the world, this is why you need to stay focused and not let your emotions control your trading decisions. Hot Tip: use automated software to help you to uncover your entry and exit points and to take the trades for you, this will help you to keep emotions out of the picture.
Not using money management: money management plays a really important role in foreign currency exchange trading. Not using any money management in your trading is like going to war without any weapons. The easiest way to incorporate MM (money management) in your forex currency trading is to create a set of rules that you are going to stick to when you trade.
As an illustration, you can make a choice to not trade more than 2% in any given trade or to not trade more than 5% of your total capital a day.
Fx trading can become a extremely rewarding activity ( and that is bringing exceptional monetary rewards) or it might even become your Full time job. You are the only one that can take action, get prepared, and start to trade FX the right way.
I hope I was able to provide you with helpful information that you can apply to your foreign currency exchange trading today. Stick around for more.
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