Avoiding pitfalls in forex trading is definitely easier said than done. Most beginners know about the possible mistakes, recognize them even but still fall victims of undisciplined trading.
Large Leverage – Plan for Disaster
Using large leverage options (and my large I mean everything that is beyond 1:200) is a dangerous business. Just because there is an option of high leverage, doesn’t necessary mean that you should go for it.
Base you trading decisions on fundamental and technical analysis, instead of potential margin leverage and possible large profits. Profits can indeed turn out to be very rewarding, however so can losses. When things go wrong – with high leverage your trading account goes rotten very fast.
No Flexibility – No Profits
Forex market doesn’t stay still. It turns and flexes and, despite all the indicators available today, can still surprise you. It is important to adopt your trading plan to changing market conditions.
Being flexible doesn’t mean changing your trading plan in search of a possible trend to make you a millionaire in one day. Flexibility in forex means understanding how changes in forex market affect the trades.
If forex market was predictable, we would all have been making millions by now. The idea is to use technical analysis to figure out your next moves, and at the same time be aware that market conditions can suddenly turn against you, despite a seemingly clear trending picture.
Don’t Stop Searching for Updates
Successful forex trader keeps an eye on current events, news, press releases and how those move the currency prices. Using just technical analysis is not enough. You have to dive into fundamentals as well. Some fundamental indicators are powerful enough to make a significant change in currency pair involved.
Fundamental analysis involves clear understanding and awareness of economic calendar and announcements. It is important to check the calendar entries, notice how each news release influence the market and prepare yourself for each event.
Losses are Part of the Game
Forex trading is all about ups and downs. Just as you see movements in forex market itself, you must accept similar up and down movements in your profits. All traders experience losses on a daily basis. The difference between a successful trader and a beginner is that an experienced trader doesn’t freak out over losses and looks at the overall picture (for example, total profits at the end of the month). While beginner is obsessing over the recent loss, an experienced trader moves on and takes new opportunities by the horn.
There is no way to erase all the emotions. Of course a loss is disappointing and naturally we blame ourselves for it. However, it is important to step back and examine what went wrong and refocus on the new prospects.
Summary
Knowing the pitfalls is not enough. You have to really understand the common mistakes and keep out of trouble. Be realistic and put your self-esteem aside. The trick is to keep up to date with current events and trade based on your forex plan.
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