The dismal statistics of Forex Trading show that the majority of people
lose money and a lot of it on currency trading. Why is that? Why do most
of the people end up short? There are a number of common reasons.|
1. People don't understand the market - Most people operate under
the assumption that forex trading is easy. After all, it's just one
currency versus another, isn't it? Sounds very simple, but it's not. The
Forex Market is one of the hardest, fastest, and most volatile markets in
the world. You need to invest some time and money in learning how this
market operates. Start by getting a good Forex trading book.
2. Operating on the tips of friends and strangers - People are
always on the lookout for tips on the direction the forex market is
taking. And you know the terrible thing: People operate on the tips of not
only their friends, but also complete strangers, all of which haven't got
a clue as to how the market really works. Operating on tips isn't trading.
3. Paying too much fees - People don't shop around for the cheapest
trading platforms and brokers and end up paying huge commissions on every
signal and action. Shop around and negotiate every fee. Don't be a sucker
and waste money on commissions.
4. Succumbing to emotions - People buy when it's high and sell when
it's low, this is the rule of the market. The reason is that people panic
when they see their investment going in the wrong way. They end up making
bad decisions which minimize their profits and maximize their losses. Try
to detach yourself from your emotions and let your logic make your
decisions for you.
5. Working without a Forex Trading Software - Forex Trading is a
global business which operates 24 hours a day throughout the year in
multiple markets. It's virtually impossible to operate in this market
without a special Forex trading software. All the serious traders have
such softwares. In order to enhance your chances of making a lot of money,
get one for yourself.
If you're making any of these 5 mistakes, stop right now and start taking
the right steps to make a killing on the Forex trading market.
45 Ways to Avoid Losing Money Trading Forex
1. Knowledge Deficiency - Most new forex traders do not
take the time to learn what drives currency rates (primarily
fundamentals). When some news or a statement is due out, they close out
their positions and sit out the best trading opportunities; they are
taught to only trade after the market calms down. So essentially they miss
the whole move and then trade the random noise that follows a fundamental
price move. Just think for a moment about technically trading the
aftermath of a price move; there is no potential.
2. Overtrading - Trading often with tight stops and tiny profit
targets will only make the broker rich. The desire to just make a few
hundred dollars a day by locking in tiny profits whenever possible is a
3. Over leveraged - Leverage is a two way street. The brokers want
you to use high leverage because that means more spread income because
your position size determines the amount of spread income; the bigger the
position, the more spread income the broker earns.
4. Relying on Others Real traders play a lone hand; they make their
own decisions and don't rely on others to make their trading decisions for
them; there is no halfway; either trade for yourself or have someone else
trade for you.
5. Stop Losses Putting tight stop losses with retail brokers is a
recipe for disaster. When you put on a trade, commit to a reasonable stop
loss limit that allows your trade a fair chance to develop.
6. Demo Accounts Broker demo accounts are a shill game of sorts;
they re not as time sensitive as real accounts and therefore give the
impression that time-sensitive trading systems, such as short-term moving
average crossovers, can be a consistently profitable trade; once you start
dealing with real money, reality is quick to set in.
7. Trading During Off Hours Bank FX traders, option traders, and
hedge funds have a huge advantage during off hours; they can push the
currencies around when no volume is going through and the end game is new
traders get fleeced trying to trade signals. There is only one signal
during off hours it is better to stay out.
8. Trading a Currency, Not a Pair Being right about a currency is
half a trade; success or failure depends upon being right about the second
currency that makes up the pair.
9. No Trading Plan - "Make money" is not a trading plan. A trading
plan is a blueprint for trading success; it spells out what you see your
edge as being; if you don't have an edge, you don't have a plan, and
likely you'll wind up a statistic (part of the 95% of new traders that
lose and quit).
10. Trading Against Prevailing Trend There is a huge difference
between buying cheaply on the way down and buying cheaply. What was a low
price quickly becomes a high price when you're trading against the trend.
11. Exiting Trades Poorly If you put on a trade and its not working
make sure you exit properly; dont compound the damage. If youre in a
winning trade dont talk yourself out of the position because youre bored
or want to relieve stress; stress is a natural part of trading, get used
12. Trading Too Short-term - If youre profit target is less than 20
points, don't do the trade; the spread you pay to enter the trade makes
the odds way against you when you go for these tiny profits.
13. Picking Tops and Bottoms - Looking for bargains works well at
the supermarket but not trading foreign exchange; try to trade in the
direction the price is going and your results will improve.
14. Being Too Smart - The most successful traders I know are high
school graduates. They keep it simple and dont look beyond the obvious;
their results are excellent.
15. Not Trading Around News Time Most of the big moves occur around
news time. The volume is high and the moves are real; there is no better
time to trade fundamentally or technically than when news is released;
this is when the real money adjusts their positions and as a result the
prices changes reflect serious currency flow (compared to quiet times when
bank traders rule the market with their customer order flow).
16. Ignore Technical Conditions Determining whether the market is
over-extended long or over-extended short is a key determinant of
near-time price action. Spike moves often occur when the market is all one
17. Emotional Trading When you don't pre-plan your trades, it is
essentially a thought and not an idea; thoughts are emotions and a very
poor basis for doing trades. Do people generally say intelligent things
when they are upset and emotional? I dont think so.
18. Lack of Confidence Confidence only comes from successful
trading. If you lose money early in your trading career its very difficult
to gain true confidence; the trick is don't go off half-cocked; learn the
business before you trade.
19. Lack of Courage to Take a Loss There is nothing macho or gutsy
about riding a loss, just stupidity and cowardice. It takes guts to accept
your loss and wait for tomorrow to try again. Getting married to a bad
position ruins lots of traders. The thing to remember is the market does
crazy things often so don�t get married to any one trade; it's just a
trade. One good trade will not make you a trading success; rather, it is
the monthly and annual performance that defines a good trader.
20. Not Focusing on the Trade at Hand There is no room for
fantasizing in successful trading. Counting up and mentally spending
profits you haven't made yet is mental masturbation and does you no good.
Same with worrying about a loss that hasn't happened yet. Focus on your
position and have a reasonable stop loss in place at the time you do the
trade. Then be like an astronaut sit back and enjoy the ride, there is no
sense worrying because you have no real control; the market will do what
it wants to do.
21. Interpreting forex news incorrectly Fact is the press only has
a very superficial understanding of the news they are reporting and tend
to focus on one element and miss the point. Learn to read the source
documents and understand it for real.
22. Lucky or Good Your account balance changes don't tell you the
whole story about your trading; fact is, if you are taking a lot of risk
and making money you will eventually crash and burn. Look at the
individual trade details; focus on your big losses and losing streaks. Ask
yourself this - if I had a couple of consecutive losing streaks or a
couple of consecutive big losses, how would my account balance look.
Generally, traders making money without big daily losses have the best
chance of sustaining positive performance. The others are accidents
waiting to happen.
23. Too Many Charity Trades When you make money on a well
thought-out trade, don't give back half on a whim; invest your profits
from good trades on the next good trade.
24. Courage Under Fire When a policeman breaks down the door
to a drug dealers apartment, he is scared but he does it anyway. When a
fireman climbs onto the roof of a burning building, he is scared but does
it anyway - and gets the job done. Its the same with trading - it's OK to
be scared, but you have to pull the trigger; no trigger = no trades = no
profits = no trader.
25. Quality Trading Time I suggest 3 hours a day of quality,
focused trading time; that's about all your brain allows. When you are
trading, you must be 100% focused - half way is plain bullshit and does
not work. Don't even think that time spent in front of the computer
watching the rates has any correlation with profitability; it doesn't.
Spend less time but when you are trading, be 100% focused.
26. Rationalizing Killer. Absolute Killer. Put your trade on and
let it run. If it hits your reasonable pre-determined stop, you're out.
Moving your stop is like getting up after being crushed with a knockout
blow; it�s pointless, things will only get worse. Don't ignore the obvious
- you are wrong, so get out. Come back the next day and try again. A small
loss will not hurt you, but a catastrophic loss will.
27. Mixing Apples and Oranges Have you ever done this: you see the
EUR/USD trading higher, so you buy GBP/USD because it hasn't moved yet.
That's a mistake. Most of the time the reason the GBP/USD hasn't moved yet
is because its already overbought or some 4:30am UK news was bearish.
Don't mix apples and oranges; if EUR/USD looks good, buy EUR/USD.
28. Avoiding the Hard Trades Bank FX traders have an axiom: the
harder the trade is to do, the better the trade. This I learned from
experience - when I needed to buy EUR/USD and it was hard to get them,
that's when it is necessary to pay up and get the business done. When it's
easy to get them, then sit back and wait for better levels. So if you're
trying to get into a trade or more importantly get out of a trade, don't
putz around for a few points; get your business done.
29. Too Much Detail If you are trading more than 2 indicators, then
you need to clean house. Having many indicators stifles trading and finds
reasons not to trade. A setup and a trigger is all you need.
30. Giving Up Too Easy Your first trade of the day may not be your
best but certainly it's no reason to quit. I have a preset daily trading
limit and I use it; you can't make money by making excuses. Getting trades
wrong is natural and should be expected.
31. Jumping the Gun Don't be penny wise and dollar foolish; wait
for your trade signal to be clear. Put on your trade and give it a decent
size stop loss so that you don't get knocked out by random noise. Do
trades and don't buy lottery tickets (extremely tight stops).
32. Afraid to Take a Loss - Trading is not personal; it's business.
Don't think that a poor trade is a reflection on you. It could be you are
just ahead of your time or a commercial order hits the market and
temporarily creates a small unexpected move. Again, place your stop
beforehand and NEVER increase your pre-determined risk. If it's going bad,
it will probably get worse; I think that's Einstein in motion stays in
33. Over-Relying on Risk Reward There is zero advantage in risk
reward; if you put a 20 point stop and a 60 point profit your chances are
probably 3-1 that you will lose; actually with the spread its more like 4
to 1 (from entry point if it goes down 17 points you lose or up 63 you
win; 17/63 is close to 4-1).
34. Trading for Wrong Reasons - Because the EUR/USD is going up is
not in itself a reason to buy. Buying EUR/USD because its not moving is
even worse; you're paying the toll (spread) without even a hint that you
will get a directional move. If you are bored, don't trade - the reason
you are bored is there is no trade to do in the first place.
35. Rumors - Rumors are rumors almost 100% of the time; think about
where in the motion you heard the rumor. If EUR/USD is up 50 points in
last 15 minutes and the rumor is dollar negative, well then you missed it.
Whenever you trade, determine where in the motion you are entering.
36. Trading Short-term Moving Average Crossovers - This is the
money sucker of the century. When the shorter term moving average cross
the longer term moving average it only means that the average price in the
short run is equal to the average price in the longer run. For the life of
me I cannot understand why this is bullish or bearish. Easy to set up on
software, complete with lights, bells and whistles, and good for the
seller getting thousands for the software but in terms of creating profit,
it's a zero.
37. Stochastic - Another money sucker. Personally I think this
indicator is used backwards; when it first signals an overdone condition,
that's when I think the big spike in the overdone currency pair occurs. To
be overbought means strong and oversold means weak. Try buying on the
first sign of overbought and selling on the first sign of oversold; you'll
be with the trend and likely have identified a move with plenty of juice
left. So if %k and %d are both crossing 80, buy! (Same on sell side; sell
38. Wrong Broker A lot of forex brokers are horrible; get a good
one. Read forums and chats in several different places to get an unbiased
39. Simulated Results Watch out for black box systems; these are
trading systems that don't divulge how the trade signals are generated. A
great majority of them are absolute garbage. They show you a track record
of extraordinary results, but think about it - if you could build a
trading system with half a dozen filters using the benefit of hindsight,
couldn't you too come up with a great system. Of course going forward is
an entirely different story. High-speed number crunching capabilities
allows for building great hindsight trading systems; BEWARE.
40. Inconsistency Every business (forex trading included) requires
a business plan (trading plan). Unless you have taken the time to write
down a set of rules that you can and will follow, it's likely your trading
will remain unfocused and directionless. Make a plan, have rules, follow
them, set goals that are realistic, and you will achieve them.
41. Master of None Focus on one currency for technical trading.
Each currency has a unique way of trading and unless you get intimate with
it, you will never truly understand its underlying idiosyncrasies. Don't
spread yourself too thin. Focus master one currency at a time.
42. Thinking Long Term Don't do it. Stay in the moment. Especially
if you're a day trader. It doesn't matter what happens next week or next
month, if you are trading with 30 to 50 point stops restrict your thought
process to what's happening right now. That is not to stay the long-term
trend is not important; it is to say the long-term trend will not always
help you when you are trading in a significantly shorter time frame.
43. Overconfidence Trading is not easy; statistics show a 95%
failure rate. If your doing well don't take your success for granted;
always be on the lookout for ways to improve what you're doing.
44. Getting Pumped Up The trick is to maintain an even keel. When
you are in a trade, you want to think exactly as you would if you didn't
have a trade on. To do this requires a relaxed disposition; this is not a
football game. Don't get psyched up, relax and try to enjoy it.
45. Staying in the Game I don't recommend demo trading because
traders learn bad habits when trading with play money. I also don't think
letting it all hang out right away is wise either. Start off doing trades
and taking risk that is relatively small but still makes a difference to
you if you win or lose. About a quarter to a third of what you expect to
reach as your trading matures is reasonable.