Forex Mistakes That You Should Avoid

Forex Mistakes That You Should Avoid

All forex traders make mistakes, but the successful traders learn for the mistake they and others make.  It is important that you know about some of the common mistakes made by traders so you can learn to avoid them.  One you know what these common mistakes are you will be able to trade around them and lose less when you are trading.

The first mistake that many traders make is averaging down.  Averaging down is a technique that many traders come across where a position is held even when it starts making a loss.  The trader will increase the amounts in the trade and wait for a turn in the trend.  This technique is dangerous and often leads to more losses than gains.

The second mistake that many traders make is pre-positioning their trades before economic news is released.  There are certain economic new reports that affect the way the forex market works.  It is recommended that trades be closed before the news is released because of the fluctuations that can occur.

The mistake that a lot of traders make is thinking that they can predict what the market will do.  There is no way to accurately determine what the market will do in the future.  To avoid this mistake you should never open a position before the news has been released and you can see what the market is doing.

The third mistake that trader make and the second one related to the news is trading directly after the news has been released.  Once the news has been released a trend usually starts.  However, this is often a false trend which reverses before picking up again.  When this happens traders are often stopped out and they lose the edge they had with the position.

The fourth mistake that many new and experienced traders make is to risk more than 2% of their account balance.  It is recommended that you never trade more than 2% of your account as part of you risk and money management.  If you risk more than this when you hit a string of losses you could potentially lose your entire account balance. 

When you calculate what 2% of your account is you should include any leverage you are going to use.  While leverage increases the return you may make it also increases what you stand to lose.  You must take the amount of leverage you are using in the trade into account when you calculate what 2% of your balance is.

The fifth mistake that traders make is having unrealistic expectations.  A common myth about the forex market is that you can make money quickly and this is not true.  You should expect a realistic return on your time and the amount of money you are putting into your trading.  It is very hard to make large amounts if you are invest very small amounts of capital.

There are five common mistakes that new and experienced forex traders make.  When you know what these mistakes are you can easily avoid them and be successful in your trading.

Trend Trading Forex

Trend Trading Forex

I was an idiot when I first started trading Forex. Like most new traders who eventually lose all their money, I started off as a day trader. I was sitting in front of the computer for 4 hours a day trying to make pips. I was even waking up at 3 AM to trade the London open. I loved the action and the speed of trading on a short time frame but it was very stressful. Not only was it stressful but it wasn't really profitable. I lost more money than I made and at one point I was just happy to break even.

I remember reading the Market Wizards series of books and reading about Richard Dennis, the guy who created the turtle traders. The turtle traders were a group that Richard Dennis put together after a bet with his trading partner. Richard Dennis believed that anyone could learn trading if they had the right rules. He put an ad in the paper and he taught people from all walks of life how to become traders. Many of the people he taught became millionaires and some are even running their own firms.

One of the core principles that Richard Dennis taught his turtle traders is hot to trade the trend. His philosophy was that price action is the only thing that matters in trading, it is the only thing that is true. Technical indicators aren't true and predicting where the market will go doesn't work. Trend traders simply ride the market like a wave. If the marketing is up, they are taking long positions; if the market is down, they take short positions. This sound rather simple but it is psychologically hard to apply when trading. It is difficult to see a trade go against you and knowing that you have to stay in it.

The turtle trading system can easily be applied to Forex because the currency market has some of the longest trends of any market. There are trends that last several years. If you can jump onto just one trade, you can make a ton of money. With this trading system, you will get a lot of false starts and you will often get kicked out of trades because they will turn on you, but it only takes one major trend per year to make you the bulk of your money.

This is the same system that John Dunn uses. He is famous for taking a small investment and turning it into a 300 million dollar fund. His system is always in the market and is always trading. When it gets onto a trend, it stays with it until it ends. There are years when his systems doesn't make any money and years where it makes a killing. As said, it is psychologically hard to trade like this but for those who can, they will see themselves earning more money, while having to spend less time slaving in front of a computer all day.