Given
that currency movements continue to run in real time, which in essence
we should be able to predict through this analysis, not just guessing.
Here are a couple of basic tips avoid loss greatly in Forex:
1) Knowledge Deficiency – Most new FOREX traders don’t take the
time to learn what drives currency rates (primarily fundamentals). When
news or a statement is due out they must 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 losing strategy.
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 consistently profitably
traded; 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 – 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 it’s not working make sure you exit
properly; don’t compound the damage. If you’re in a winning trade don’t
talk yourself out of the position because you’re bored or want to
relieve stress; stress is a natural part of trading; get use to it.
12) Trading Too Short-term
– If you’re 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
you’re results will improve.
14) Being Too Smart – The
most successful traders I know are high school graduates. They keep it
simple and don’t 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 Condition
– 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 way.
17) Emotional Trading
– When you don’t pre-plan you’re trades essentially it’s 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 don’t think so.
18) Lack of Confidence –
Confidence only comes from successful trading. If you lose money early
in your trading career it’s 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’s 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; 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 your taking a lot of risk and making money you
will eventually crash and burn. Look at the individual trade details;
focus on your big loses and losing streaks. Ask yourself this; if I had a
couple of consecutive losing streaks or a couple of consecutive big
loses, how would my account balance look. Generally, traders making
money without big daily loses 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. 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 your trading being 100% focused; half
way is bullshit’ it doesn’t work. Don’t even think that time spent in
front of the computer watching the rates has any correlation to
profitability; it doesn’t. Spend less time but when your trading be 100%
focused on trading.
26) Rationalizing – Killer.
Absolute Killer. Put your trade on and let it run. If it hits your
reasonable pre-determined stop your out. Think of yourself as a
prizefighter; you just got knocked 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; your wrong – get out.
Come back the next day and try again. A small loss will not hurt you; a
catastrophic loss will.
27) Mixing Apples and Oranges –
Have you ever done this; you see the EURUSD trading higher so you buy
GBPUSD because it “hasn’t moved yet”. That’s a mistake. Most of the time
the reason the GBPUSD hasn’t moved yet is because its already
overbought or some 4:30am UK news was bearish. Don’t mix apples and
oranges; if EURUSD looks bid buy EURUSD.
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
EURUSD and it was hard to get them that’s when it’s 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 your 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 your
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 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 your 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 motion…”
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 EURUSD is going up is not in itself a reason to buy.
Buying EURUSD because its not moving so little risk is even worse;
you’re paying the toll (spread) without even a hint that you will get a
directional move. If your bored don’t trade; the reason your 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 EURUSD is up 50 points in last 15 minutes
and the rumor is dollar negative, well then you missed it. Whenever you
trades 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 at 20)
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 opinion.
39) Simulated Results
– Watch out for “black box” systems; these are trading systems that
don’t divulge how the trade signals are generated. 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 your 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 your trading a significantly shorter time frame.
43) Overconfidence
– Trading is not easy; statistics show 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.
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