You don’t have to be a trading novice to make mistakes in the financial markets. In fact, experienced players do dumb things all the time, despite knowing that things turn out badly when their discipline falls apart. The best we can do after committing an error is to take corrective action and swear it won’t happen again. While that’s improbable because we’re imperfect humans, hard-wiring an awareness of these 10 common mistakes into our trading brains will go a long way toward helping us avoid unpleasant incidents.
If the Forex trading market were so simple to break into as a new trader, how come so many fail when they try their hand at it? You've seen the advertisements, with the promises of high profits for very little effort; having money made for you automatically; and the golden investors' stories of success. There are several mistakes traders new to the Forex market make, and it inevitably leaves their trading accounts empty and their hopes disappointed. Here are a few of the typical mistakes new traders to Forex make:
Believing the Forex Hype
It's definitely an exciting new investment market, and it is fairly easy to become a part of it, but many new Forex traders buy into the unbelievable offers. Whether it's the broker who is either scamming or just terribly inexperienced but sells themselves well, or the $300 trading system that's foolproof- don't be fooled. It might be nice to hope that you can start making a large profit within hours of joining the Forex trading pool. But if you don't make sure the offer is a respected and legitimate Forex program/ site/ ebook- it's a loss-loss situation.
Being Too Early/Too Late
This error occurs when you hear market-moving news and trip over yourself to jump into a position without doing your homework. Every setup has a perfect price and time, but the elements rarely align, giving you plenty of opportunity to be right but still lose money.
Ignoring The Big Picture
Seasonality, options expiration, rate decisions, and spiraling currencies all impact the ticker tape, often generating unexpected price action that forces the majority to take losses. Despite endless macro-influences, many traders insist on playing a single price chart in a vacuum, falsely believing it has magic powers to make them money. In truth nearly all instruments follow the leaders when markets shift into highly correlated behavior because, at the same time, capital rotates into broad-based derivatives that move thousands of world markets in lockstep.
Many small players try to act like big players, betting the store on each position, hoping to increase their limited stakes. This is a huge error and great way to wash out of the financial markets. Utilize leverage only when the reward-to-risk ratio is lined so perfectly in your favor that it’s foolish to trade a smaller-sized position. This rarely happens, so margin should be applied just as rarely, while you focus on protecting core capital at all costs.
Chasing Tops/ Bottoms
Traders devise all sorts of ways to take money out of trending markets and then lose it all trying to pick tops and bottoms. While there are strategies that work well near potential turning points, many of us just throw money at a security when it feels too high or too low, forgetting that trends can persist much longer than expected. Avoid this mistake by focusing your full attention on the meat of the move and standing aside in range-bound markets.
Confidence is a good thing in investing. It encourages you to trust yourself, and in the Forex trade market you can get rewarded many times. Over-confidence, on the other hand, can give you a false sense of security in your Forex account- and cause you to make rash decisions. Part of the Forex trade market is precision, information and studious attention to details. Not understanding how to trade well on Forex trade platforms (listening to your gut) instead of taking the time to learn rarely, if ever, pays out.
The Next Best Thing
The latest ebook, the hottest new automated Forex robot and the cheapest DVD Forex tutorial are gimmicks. You can buy as many 'tricks of the trade' you want to, and it won't actually improve your investing expertise or your Forex trading potential. Many of them are useless, not proven in the field or can actually harm your Forex account with bad, simplified advice. Start with the basics, work your way up the experience ladder- and you'll be able to find your own Forex trading system that can work long-term.
Staying Too Long/Leaving Too Early
Many traders lack effective exit plans, getting out at the worst possible time or missing a good exit and turning a trade into an investment. Remedy this error by drawing up a plan that details specific technical conditions in which you’ll cash in your chips and hit the sidelines. This plan also requires a holding period that dictates how long you’ll stay positioned under ideal circumstances. Once this plan is in place, spend a few years working out the kinks because it will take that long to master the details.
Ignoring Trend Relativity
Markets trend higher or lower around 20% of the time on average, grinding sideways in ranges for the other 80% of the trading day, week or year. Traders fail to comprehend this trend-range axis, jumping into all sorts of nonexistent momentum plays that are banging around between support and resistance levels. Overcome this error by examining trends in three time frames before entering a position. Short-term traders can focus on 60-minute, daily and weekly charts while market timers set their sights on daily, weekly and monthly charts.
Profits Only, No Losses
The last fatal mistake new Forex traders make: they don't expect to ever take a loss. It's not part of the plan for money-making, and they're unprepared for it. If you're investing in the Forex trade market, get ready to take a loss. Get ready to take several. It's part of your initiation and the experience from loss teaches you what not to do. If you can't lose the money needed to open your Forex account financially, then Forex isn't the trading market for you.
Forex trading can be a great way to make an income while learning a new skill in investment. As long as you don't fall into the typical mistakes of new Forex traders Computer Technology Articles, you're already halfway to being a success.