Online currency trading has exploded in popularity over the last several years. But just because it´s easy to get into a market does not mean it´s easy to be successful trading in the market. There are many errors that can lead to unfortunate trading consequences. I had like to review them so we can all learn from them:
1. Overtrading: Overtrading ranks as one of the more easily avoided risks, since it’s one the individual trader can control as opposed to an intrinsic market risk. Overtrading typically comes in two main forms: trading too many positions at once and trading too frequently in the market, or always having an open position. Trading too many positions at once highlights several strategic errors as well as a very real financial risk. When that happens, the loss is primarily the result of overtrading relative to your margin rather than simply being wrong in the market. Running several positions at once implies a trader has analyzed multiple currency pairs and crosses and has a well-developed strategy for each. Unless you’re trading a system-based model, this seems highly unlikely.
The second form of overtrading is always having an open position in the market. At the minimum, this suggests that a trade opportunity is ever-present in the market and you know what it is. But the essence of disciplined trading is avoiding unnecessary risks. The key is to identify viable market opportunities and pursue a diligent, risk-aware strategy to exploit them.
2. Trading Without Stop Loss Orders/Moving Stop Loss Orders:
Trading an open position without a stop loss order is a recipe for disaster in any trading environment. Many new traders also mistakenly believe if they don’t have a stop loss order, they can’t get stopped out. Online currency brokerages typically reserve the right to liquidate your positions if your available margin collateral falls below specified levels. So without a stop loss order, your minimum margin requirement is effectively your stop loss order, but you may also lose more depending where your broker actually closes your position.
Moving stop losses as the market gets close to them is also a dangerous habit. If you’ve done your analysis and developed a trade strategy, you’ve likely pinpointed a price point where the strategy is wrong and that’s where you placed your stop loss to begin with. To later move the stop loss suggests an overly emotional reaction in which fears of taking a loss overwhelm your rationally designed trade strategy.
3. Trading News:
Newcomers to forex trading should generally avoid trading around economic news. The reason for this is simple-market reactions to data can be both volatile and unpredictable. The news might be U.S. dollar-positive, for example, but the dollar might still weaken if the overall trend is negative for the dollar. You might want more experience to do that. They are some trading strategies that will help you trade news with less risk, but you need to follow the strategy to avoid losing your account in just one position.
4. Changing Time Frames: Many traders trying to avoid losing money, they change the time frame to justify a bad position. Don´t do it. You will lose more, stick to your plan, specially the exit plan.
5. Trade without a plan or strategy: If you trade in Forex without a plan is like you are gambling, at the end you will lose money. Take trading in Forex seriously, just like any other business, and plan your strategy before entering the market.
6. Be Discipline: Being disciplined is of the utmost importance. It is the one undisciplined trade that will really hurt your overall performance for the day. Discipline must be practiced on every trade.
7. Never Turn a Winner into a Loser: Many new traders wait a long time before they close the position, and sometimes a winner position is turn into a loser one. Avoid being not satisfy with a small winner, here is the greed factor. There is no need to be greed, remember you will have a lot more opportunities to trade and make money.
8. Stick with your Trading Strategy: There are many strategies to trade in Forex, you should try them and see for yourself what is good for you and your type of trading. When you found the right for you, stick to it don´t change it from day to day. You can try a new strategy, but is better to do it in a demo account, and see the results. When you have a win strategy stick to it.
9. Stick with a losing position: Avoid doing this, you are not a losser because you have a lose position, you will end up losing your account if you don´t close that position and move on. Remember in Forex you always lose, is a matter of how much you are willing to lose.
10. Don’t hope and pray: Many traders think that by hoping and praying the market will turn around and they will win. Stick with your plan and strategy.
11. Avoid homeruns: Many traders enter into a position thinking the position is going to be big, sometimes it will turn to your favor, but sometimes not, so is better to hit a single that one homerun.
12. Don´t over-analyze: Many traders lose the opportunity to enter the market because they think too much. Don´t hesitate if the indicators are telling you to enter a position, do it, don´t be afraid.
Lessons To Learn
Many mistakes I’ve discussed above happen when you don´t have a trading plan, or fail to stick to one. Other big mistake is being fear and avoid taking risks. You need to apply the rules if you want to be succeed. Be discipline and consistent and you will be a successful trader.