Foreign Currency Exchange Trading can be one of the most prosperous investments any individual can make. There are many advantages of trading Forex… it is a 24/7 market, most of the trading is mechanical, you can use a big amount of leverage to raise your potential revenue, and much more.
Regardless, there are frequent errors that seem to be made by every starter Forex trader and sometimes even the professionals.
You might ask yourself, how can I prevent these mishaps and how do I recognize them? Well, I am trying to do something different with this article, I am going to explain to you one mistake and then a answer, then another mistake and another solution and so on.
Over Trading:
I ‘m sure a lot of us have listened about this one, but if you haven’t please allow me to explain. Over trading happens whenever a foreign currency exchange trader is looking for trading opportunities that aren’t really there. I have heard it all, “But if I trade more I will make more quicker”, “If this trading strategy works it will make money even if I trade it on 15 pairs”, “trading several pairs doesn’t involve money management”... I could keep going for hours.
The truth: over-trading is the MAIN cause why a good number of traders lose money. Trading the forex market can be difficult and it is easy to get confused by the enormous amount of information that is available via the internet (the problem is that most of this information is fallacious!).
The Fix: The best way to become a lucrative foreign exchange trader and not over-trade is to have a trading plan; every single successful trader I have met has one. Having a trading plan can help you become a way more disciplined trader and of course a a lot more profitable one. This takes me to the next common mistake.
Not having a trading plan: I have been trading and generating Forex strategies with some of the best and most successful foreign exchange traders in the USA and throughout the world, and I have NEVER met any successful trader without a trading plan or that just trades what looks good.
As an example, when a person wants to get a loan from a bank to launch a business one of the most valuable documents that the bank will ask for is a business plan. Why? They don’t want to lend money to anybody who doesn’t have a clear plan of what to do with it. The same happens in currency exchange.
You can be a highly 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 giant mistake. Picking tops and buttons is a pretty tricky task and even when it is done the right way you might still get an generic result.
The best technique to not commit this mistake is to stick to your trading plan and trading strategy. Hot tip: if your trading strategy is based on reversals (tops and buttons) make sure that you demo trade for at least 2 months before you send your hard earned money to your broker.
Making decisions based on emotions:
Emotions control, or at least manipulate everything we do and think, but unfortunately being emotional in Forex can very pricey.
Foreign currency exchange trading is a quite competitive arena and when you trade the currency market you are trading against some of the smartest minds on the planet, this is why you need to stay concentrated and not let your emotions control your trading decisions. Hot Tip: use automated software to allow you to get 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 quite vital role in foreign currency exchange trading. Not using any money management in your trading is like going to war with no weapons. The most effective way to incorporate MM (money management) in your foreign currency trading is to create a set of rules that you are going to stick to when you trade.
As an example, 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 every day.
Currency Trading can become a pretty gratifying activity ( and that is bringing tremendous monetary rewards) or it might even become your Full time job. You are the only one that can take action, get educated, and start to trade Forex 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 much more.
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