Some of the Mistakes and Misconceptions Forex Traders Make

[tmbaru 10]

Forex market is one of the most liquid markets across the globe and the most complex. It is a platform where investors can make substantial amount of money or loss significant amount of their investments. When a currency trade goes against you then it is advisable to close it out. On the other hand, when a trade works in your favor you should continue trading to gain more. Never try holding on to losses with the hope that things will be get better because you may end up making a big loss. When trading in the Forex market, it is of paramount importance to take losses early but let the profits run for optimal returns.

 

Forex traders both novice and experienced, sometimes makes mistakes when they are trading in currencies. Read along to see some of the biggest mistakes and misconceptions Forex traders have and how you can put an end to them to become a profitable and successful trader.

 

Not Having a Sound Understanding of Risk/Reward

 

Successful traders in the Forex market usually have a sound and comprehensive understanding of the power of risk/reward. They also have a good grip of how to implement risk/reward on every trade they undertake. Your winnings must be bigger than your losing trades. Therefore, you should always view every trade you are planning to take in terms of risk and reward. The reward must outweigh the risk for the trade to be worthwhile. Once you master the risk/reward ratios then you can afford to be making profits consistently.

 

Failing to Understand Position Sizing

 

You need to clearly understand that putting a bigger stop loss on a trade doesn’t literally mean that you have to risk more cash. Also, putting a narrower stop loss on a trade doesn’t automatically mean that you risk less in your trading. You should adjust your position size accordingly to meet the most realistic and logical stop loss distance. Once you acquire a thorough understanding of position sizing then the overall cash management plan will improve significantly. It will also put you in a vantage point to correctly implement risk/reward ratios on your every trade.

Lack of a Trading Plan

 

Most novice traders usually do not have functional trading plans. They usually have the misconception that they do not need a trading plan to succeed in the Forex market. Forex trading should be treated just like any other business venture. The same way you have a well crafted business plan for prosperity and growth of your business, it is the same way you should have a well designed trading plan. A trading plan enables you to be accountable for your actions in the Forex market. The mistake most traders make is just to get fixated on the amount of money they can make from trading in currencies without considering the risk involved. A trading plan comes in handy to help traders stay focused so that they do not start trading in a delusional manner.

 

Emotional Trading

 

Emotional trading in the Forex market leads to many traders losing substantial amount of money in the markets. Never allow emotions to cloud your judgment when you are trading in currencies. This is because once you start emotional trading, it becomes quite hard to pull yourself out since it is a psychologically reinforcing issue. Once you get into the grip of emotional trading the best thing you can do is to totally stop trading for some time and take this time to rethink things over again.

 

The Forex market can enable you make huge amounts of money or can lead you to an arena of huge financial losses, the outcome of your trading will depend on how well you will master the tactics of trading profitably in the market.

[tmbaru 10]

You should never risk all you have since you will have to lose some eventually but to make higher profits you need to risk as much.

[tmbaru 10]

Think of the markets as being like the ocean and you (trader) as a surfer. Surfing requires skills, balance, patience, proper equipment and being mindful of your surroundings. Would you go into water that had dangerous rip tides or was shark infested? all in the name of SURFING? I BET NOT.....

[MightyMouse 12]

Think of the markets as being like the ocean and you (trader) as a surfer. Surfing requires skills, balance, patience, proper equipment and being mindful of your surroundings. Would you go into water that had dangerous rip tides or was shark infested? all in the name of SURFING? I BET NOT.....

 

I would, however, wait below the surface for a surfer to come along and knock him off the board and devour him; Tide or not. Fool for thinking he could get away with trying to do what he was trying to do.

[tmbaru 10]

MM, in the same vein traders got to analyze their surroundings before jumping into a trade

[Seeker 11]

Anyone read Bird-Watching in Lion Country?

[tmbaru 10]

You should only use risk capital that you can afford to lose.....

[MightyMouse 12]

Anyone read Bird-Watching in Lion Country?

 

Yes. Basically mean reversion. Draw your own conclusions.

[BRichard 10]

You should never risk all you have since you will have to lose some eventually but to make higher profits you need to risk as much.......

......the slogan that you should only invest the much that you willing to lose holds water in this aspect,,,you should not empty your bank to invest thinking that you will win in your trading. In Forex trading there is no 100% guarantee, it is all about risking but you should take all the necessary measures to mitigate the losses that you can incur....

[tmbaru 10]

Warren Buffet says there are two rules in trading: Rule 1: Never lose money. Rule 2: Remember Rule

[tmbaru 10]

It is also good to Stick a note on your computer that will remind you to take small losses often and quickly - don't wait for the big losses.

[Seeker 11]

It is also good to Stick a note on your computer that will remind you to take small losses often and quickly - don't wait for the big losses.

 

That would be breaking buffett's rule 1 though wouldn't it