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Forex Trading Mistake
by Donald Saunders
- Successful Forex traders know only too well that their success comes from drawing up a set of trading rules and then sticking to them like glue. What most traders don't realize however is that breaking your own set of trading rules is also the Forex trader's biggest, and most costly, mistake.
- Your biggest enemy in foreign exchange trading is emotion and the main reason for drawing up a set of trading rules is to take emotion out of the trading equation and to ensure that you are opening and closing trades based purely on what the numbers are telling you.
- Another major problem for many traders is greed. Now none of us like to think of ourselves as being greedy, but this is one of the seven deadly sins which is always lurking close at hand and which has a way of creeping up on us when we're not looking. On many occasions successful traders find themselves with a winning run of trades, earning perhaps $500 or $1,000 a day, and think to themselves that, if they can earn this sort of money day in and day out, surely it must be possible to earn $750 or $1,500 a day. Well, there's only one way to find out and that's to push themselves a little by relaxing their trading rules to open up a few more trades - just this once.
- Now they may well be lucky and their earnings might just go up over the next few days, but will it last? Invariably the answer is no and time after time traders in exactly this position find that their short term gains are wiped out and that they rapidly move from being one of the few successful traders to being one of the 80% to 90% of traders who regularly lose money.
- It is very easy to allow greed to tempt you away from your own trading rules just this once and sometimes this strategy will prove to be successful. However, you're now beginning to trade on emotion and, like most things in life, once you've done it once it's much easier to do it the second or third time.
- Your trading rules are your best friend when it comes to Forex trading and you break them at your peril.
- So to start trading right away you need to still read through some information or trading to help you start your forex trading.
by Donald Saunders
- The No 1 mistake that most Forex traders make is to set themselves a set of trading rules and then fail to stick to them because they allow their emotions to come into play so that their heart, rather than their head, rules their trading. The No 2 mistake that most Forex traders make is to start doubling up on a losing trade and, once again, they make this mistake for exactly the same reason.
- You cannot allow your emotions to take over when it comes to foreign exchange trading and yet, time after time, that's exactly what happens.
- When you find yourself in a losing trade then, providing you've done your homework and entered this trade on the basis of the numbers, and not on a hunch, the simple fact of the matter is that the market has unexpectedly moved against you.
- This is something that happens to traders every day and is nothing more than a fact of Forex trading. It occurs because, no matter how much we like to think that the market is predictable, it isn't. Yes it will generally follow a pattern and the sophisticated tools that we have at our disposal will pick this up and allow us to trade profitably more often than not. But the market has a mind of its own and it will frequently catch out even the most experienced of traders.
- The problem however is that it is human nature when you find yourself in a losing trade to feel that this is only a temporary situation and that the market will turn back in your favor, turning this losing position into a winning trade. This happens because, otherwise, it would mean that you were wrong about this trade and most of us don't like to admit that we're wrong.
- But human nature takes you one step further and often compels you to take action to reinforce your original decision and to demonstrate your confidence in that decision. So, what do you do? You start to double up on this losing trade to show your confidence in it and also, subconsciously, because when you're proved right your final profit will also be that much greater as the trade recovers from a low position. In other words, the little green demon of greed also creeps in at this point.
- Now sometimes you'll be lucky and the market will indeed turn around and give you a nice profit. However, this is simply compounding the error you've made in doubling up on a losing trade by encouraging you do the same thing next time you're in this position. Invariably of course your luck doesn't hold and the next time you'll lose heavily.
- So how do you avoid this mistake?
- You made the mistake simply because you found yourself in a position in which your judgment about a trade was being challenged and you were facing the uncomfortable position of having to admit that you were wrong. The real problem though is that you weren't wrong at all and that there was no need to take the action which you did in the first place.
- Based on the numbers you were given, your judgment was quite right and there was no reason at all why you should not have entered this trade just as you did. Unfortunately, the market then decided to take an unexpected turn which neither you nor 99% of the other Forex traders could reasonably have been expected to predict. You didn't make a mistake at all, but simply experienced the unpredictability which is an everyday part of foreign exchange trading.
- The mistakes that we make as Forex traders are generally nothing more than a case of allowing emotion to creep into our trading decisions. The foreign exchange market is a technical market and you must approach it as such and trade accordingly if you are to succeed.
- So to start trading right away you need to still read through some information or trading to help you start your forex trading.
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