7 foreign exchange trading basics that killed dozens of traders
It is impossible to trade without losses, but one can still minimize them.
Everyone lost their money at least once. However, we can call such an experience positive. There is no beginner that could become professional without it. Some pass this path relatively fast, some not. Some even decide to give up trading at all. Unfortunately, even experienced traders often make mistakes that lead to spontaneous losses. Today we will examine these mistakes. There are loads of them of course, but we will look into the most frequent ones and analyze them in order to find the reasons for failure and to find out how you can avoid them in future.
1. The first and the most common mistake is a wrong choice of a trend. Traders often open long positions during descending movement and vice versa. Not to trade against trend is a main trading rule after all. So, you need to be sure that the trend is reversing and not coming into a correction phase when you are going to open a position that is opposite to the current trend.
2. Many professional traders base their strategies on technical analysis only. They do not consider the influence that macroeconomic data makes on currency quotes. Some say that fundamental analysis is unintelligible and obscure; however, one does not need to ignore it. It is necessary to spend much time to analyze the influence of data on the market, but almost all the brokers publish economic calendars with explanation of releases nowadays. On the other hand, many traders use news as an opportunity to enter the market with relatively simple strategies. But if you are not sure that you have analyzed the market in the right way or are not ready to experience losses, do not trade on news.
3. Many beginner traders like to use big leverage because they want to earn a big capital as fast as possible. The big leverage should be used only when you are sure of yourself and your strategy, i.e. when you are an experienced trader. Until then you’d better choose smaller leverage that sometimes may save your funds for much longer.
4. You usually think about how and with the help of which strategy you are going to earn before you start trading. Professional traders always strictly follow their plan that is based on current tasks and former experience. Everyone has his own plan that contains different individual points. Someone does not trade during certain sessions, someone does not trade some currencies or trading assets, someone does not trade on the next day after certain losses etc. If you have designed such a plan and follow it, then you are halfway to success.
5. Emotions. One can talk or write about them a lot. Expert advisors have got a huge advantage over humans in this way. Emotions prevent us from trading. And, as soon as you learn to control them, you will stop making mistakes. The best way to resist emotions is described in the previous paragraph; follow your plan.
6. Traders often open another transaction right after the closing of a profitable one because they are overexcited and wish to get a higher profit. It usually leads to spontaneous losses. One should avoid this. Each and every transaction shall be analyzed and thought over. Some traders even open an opposite transaction after they closed an unprofitable one in order to restore their trading balance. One can fight overexcitement in the same way as he or she fights emotions.
7. Many traders ignore stop orders at all. This means only one thing: they do not to know what to do next. Decide how much you are ready to lose before placing an order. Of course you do not need any “stops” if you are ready to lose the whole deposit, which is obviously not true. Stop losses are called stop losses purposefully. Use them all the time. Many people think that they can manually close an order if the price goes in the wrong direction while they are sitting in front of their computer’s monitor. One should not do it. You can be affected by emotions, which will lead to bigger losses than those you could experience with the help of stop loss order.
So, we have examined the most frequent mistakes made by traders. Of course there are much more failures you can face, but these seven are the kings of failures at the Forex market. Do not make those mistakes and a profit will be not long in coming. Take it as foreign exchange trading basics. Good luck and short spreads!