Part 9: Common Forex trading mistakes and traps
The most common Forex trading errors as well as traps
There are common errors and 'traps' that cause the majority of traders trouble at certain points in their careers in trading. Let's look at the most frequent mistakes traders make that prevent their businesses from making money in the market:
* Analysis-paralysis
There's a plethora of quantity of Forex news-related variables that could divert a trader's attention and also numerous trading systems and software. You'll have to go through all these factors and come up with a strategy that is easy but effective but be aware that this can be quite a daunting task for novice traders.
The reason for this is that a majority of traders seem to believe that'more is better'. However, the truth is that'more isn't necessarily better in relation in Forex trading. There's no need to sit at your laptop for hours studying Forex report or a variety of indicators. My philosophy of trading is that every factor that influence the price movements are captured by the price action displayed on an underlying price chart. Therefore, wasting your time and money in trading software, systems or even analyzing news variables is just unproductive. In addition, many traders experience analytical paralysis. This happens when traders attempt to study the market with so many variables that they become exhausted until they make foolish emotional mistakes in trading.
* Over-trading
Many traders fail to earn money on the market in the long term due to a obvious reason: They trade too often. One interesting aspect of trading is that the majority of traders are very successful when they are using demo accounts, however, when they are trading on real money, they perform terrible. The reason is because the demo trading environment has practically no emotion, because your actual funds are not in the balance. This goes to prove that emotions are the most destructive factor in trading performance. The traders who are over-traded operate solely on emotions.
Trading when your planned trading edge isn't in place is considered to be trading too much. Trading when you don't have a plan for trading or have not developed a trading edge is considered to be over-trading. In essence, you must be aware of exactly what you are seeking in the market, and only trade when you have an edge. If you trade too often, you'll to accrue cost of transactions (spreads as well as commissions) in addition to can cause you to lose more money since you're simply gambling on the market. You must take an sane and measured approach towards the markets, and not an alcoholic gamblers approach...which is the most popular approach for many traders.
* not applying risk reward or money management in a proper manner
Risk management is essential to success in markets. Risk management is the process of limiting the risk of each trade to a degree that is comfortable for you. Many traders do not realize that they could lose on any trade. If you are aware and acknowledge that you may lose money on any trade...why would you ever take on more than you are confident about losing What do you think? But traders make this error repeatedly again...the error of putting too much money for each trade. One unintentionally leveraged trade that doesn't work for you to start an array of trading mistakes that are emotional and will wipe your trading account clean more quickly than you imagine. Take a look at this article about Forex managing money for additional information.
* No trading strategy and no discipline routine
The absence of the proper Forex trading plan is the most common mistake that Forex traders commit. A lot of traders believe they'll come up with plans for trading "later in the future" or once they have started making money or have no need for one or put it "in their minds". The rationalizations for these scenarios can hinder traders from getting the results they desperately want. If you do not have an Forex trading strategy that describes every action you take in the market, as well as your overall approach to trading and strategy, you'll be more likely to be influenced by emotions and an attitude of gambling. For beginners, it is essential to have an Forex trading plan to help them establish their strategy for trading and make a plan that they utilize to trade the market. And you cannot store it all in your head...you must draw out your trading strategy and then read it each day you trade.
* Making real money too quickly or betting on it
The temptation to leap into the market and trade with real money can be too overwhelming for many traders to resist. However, the reality is that until you've achieved proficiency with a Forex trading strategy such as the price-action trading strategy, then you shouldn't be trading with real money. When I say "mastering" the technique is to be consistently successful with a demo account over three to six months or more prior to launching a live account. But you don't want to make use of demo accounts as an crutch...trading with a real-money account is different because of the actual emotional stakes, so ensure that you make the switch to real-money trading only after you've achieved results in the demo...don't be afraid to trade real money because eventually , you'll need to transition to real-money trading.
Make sure you're not merely gambling your money. Making the mistakes we have discussed previously, including over-trading, excessive leverage or not having a trade strategy, etc. are all actions that gamble traders engage in. The traders who do not gamble in markets are composed as well calculating...they have a plan for trading and a journal of their trading, and they know precisely the edge they have in trading and when it is appropriate to trade it.
