Forex Analysis
Lack Of Game PlanNumerous traders do not have a game or trading plan. They do not know what to do because they do not have defined strategy or profit goal. A large floating profit will often turn into a large loss because they did not know when to get out. Always be sure to have a TRADING PLAN.
Lack Of Money Management
Trading in the FOREX markets is not a question of how much the loss will be if you are wrong or how much the profit will be if you are right. It is a question of the odds of being right. We call it the RISK-TO-REWARD RATIO. Good money management means you should know your profit objective; the odds of being right, and control your risks with stops.
Failure To Use Stop Lost Order
This is related to the first 2 rules: Lack of game plan and lack of money management. Failure to utilize stop loss or limit orders reflects the absence of goals and objectives. Mental stops do not prevent against irrationality, arising when individuals operate on fear and hope.
Taking Small Profits and Letting Your Losses Run
A very common mistake among traders is taking small profits and letting losses run. Again, this is often the result of not having a game plan. After one or two losing trades, traders are very likely to take a small profit on the next trade even though that trade could have turned into a large profit-maker that would have offset any losses. This mistake is overcome by using pre-determined stop loss and limit orders to prevent your losses from running and to allow your profit objectives to be realized.
Over Staying Your Position
Another common mistake of trading is overstaying your position, or simply failing to take profits at a pre-determined level. There seems to be a natural law that the market is only going to allow one individual so much money before it starts to take it back. Yet, it is when you have these profits, especially paper profits that you often try to get the last nickel out of the trade. If your price objective is met and you are still in the market without a stop loss order, you are overstaying your position.
Averaging Your Loss
This is usually a holdover from trading stocks. In the Forex, with one to five percent margin, averaging a loss can be disastrous. A typical approach is that after you have bought a currency and it drops lower, you figure that since it was a good buy then, it is a better buy now. You can also left averaging down by figuring you will have a lower average entry price which requires a smaller move to break even. Unfortunately, you will lose twice as much if the market continues against you.
Meeting Margin Call
Most often, meeting a margin call will only increase your loss. A margin call means that you were wrong, and that your position should be closed out. Because people hope the market will eventually go in a favorable direction, they meet those margin calls and continue to hold the losing position.
Increase Your Commitment With Success
One of the most dangerous mistakes you can make in trading is to increase your exposure as you become more successful. You will risk more dollars per trade because you have more money. But, because you have more money (and confidence) when successful, you are also likely to take larger percentage risks. Not surprisingly, this ruins more traders than a series of small losses.
Over Trading Your Account
Overtrading your account or risking too large of a percentage of equity on any single trade; either by trading too many contracts for any single trade or by trading too many currencies. This often happens after a period of success when you "know" that the market is going to do something. To prevent this mistake from occurring you must have a hard and fast rule that you can risk no more than a certain percentage of your equity on any trade regardless of how good the trade looks.
Failure To Remove Profits From Your Account
As stated before, it is almost a natural law that over a given period of time the markets will allow you to make only so much money and then you are going to have to start giving some back. This can be overcome by pre-determining an equity level at which you remove profits from your account.
Changing Strategy During Market Hours
While trading you are subject to emotional reactions such as fear and greed. With rare exception, the best approach is to not change your trading strategy unless there is an unexpected news event or market reaction to left such a modification.
Lack Of Patient
Not all traders trade because they want to make money. Many trade because they want the action. For those of you who do wish to learn how to make money in the Forex, rest assured you can. Do not expect to make money in each and every trade. Certainly the market will do the unexpected and at times you will lose more than you expected; but if you persistently avoid making these mistakes, your chances of profiting will increase.
Lack Of Money Management
Trading in the FOREX markets is not a question of how much the loss will be if you are wrong or how much the profit will be if you are right. It is a question of the odds of being right. We call it the RISK-TO-REWARD RATIO. Good money management means you should know your profit objective; the odds of being right, and control your risks with stops.
Failure To Use Stop Lost Order
This is related to the first 2 rules: Lack of game plan and lack of money management. Failure to utilize stop loss or limit orders reflects the absence of goals and objectives. Mental stops do not prevent against irrationality, arising when individuals operate on fear and hope.
Taking Small Profits and Letting Your Losses Run
A very common mistake among traders is taking small profits and letting losses run. Again, this is often the result of not having a game plan. After one or two losing trades, traders are very likely to take a small profit on the next trade even though that trade could have turned into a large profit-maker that would have offset any losses. This mistake is overcome by using pre-determined stop loss and limit orders to prevent your losses from running and to allow your profit objectives to be realized.
Over Staying Your Position
Another common mistake of trading is overstaying your position, or simply failing to take profits at a pre-determined level. There seems to be a natural law that the market is only going to allow one individual so much money before it starts to take it back. Yet, it is when you have these profits, especially paper profits that you often try to get the last nickel out of the trade. If your price objective is met and you are still in the market without a stop loss order, you are overstaying your position.
Averaging Your Loss
This is usually a holdover from trading stocks. In the Forex, with one to five percent margin, averaging a loss can be disastrous. A typical approach is that after you have bought a currency and it drops lower, you figure that since it was a good buy then, it is a better buy now. You can also left averaging down by figuring you will have a lower average entry price which requires a smaller move to break even. Unfortunately, you will lose twice as much if the market continues against you.
Meeting Margin Call
Most often, meeting a margin call will only increase your loss. A margin call means that you were wrong, and that your position should be closed out. Because people hope the market will eventually go in a favorable direction, they meet those margin calls and continue to hold the losing position.
Increase Your Commitment With Success
One of the most dangerous mistakes you can make in trading is to increase your exposure as you become more successful. You will risk more dollars per trade because you have more money. But, because you have more money (and confidence) when successful, you are also likely to take larger percentage risks. Not surprisingly, this ruins more traders than a series of small losses.
Over Trading Your Account
Overtrading your account or risking too large of a percentage of equity on any single trade; either by trading too many contracts for any single trade or by trading too many currencies. This often happens after a period of success when you "know" that the market is going to do something. To prevent this mistake from occurring you must have a hard and fast rule that you can risk no more than a certain percentage of your equity on any trade regardless of how good the trade looks.
Failure To Remove Profits From Your Account
As stated before, it is almost a natural law that over a given period of time the markets will allow you to make only so much money and then you are going to have to start giving some back. This can be overcome by pre-determining an equity level at which you remove profits from your account.
Changing Strategy During Market Hours
While trading you are subject to emotional reactions such as fear and greed. With rare exception, the best approach is to not change your trading strategy unless there is an unexpected news event or market reaction to left such a modification.
Lack Of Patient
Not all traders trade because they want to make money. Many trade because they want the action. For those of you who do wish to learn how to make money in the Forex, rest assured you can. Do not expect to make money in each and every trade. Certainly the market will do the unexpected and at times you will lose more than you expected; but if you persistently avoid making these mistakes, your chances of profiting will increase.
Comments