Forex Mistakes To Avoid

Thanks to the volatility of the Forex market, sometimes it seems that trading on it is more like gambling than it is strategy. As long as you know what you’re doing and you have a strategy that is good, you will easily be trading and not simply gambling your money. A lot of traders make some mistakes when they begin, which make their investments lose some of their credibility. Below you can read about some of the mistakes which are made by beginner Forex traders.

First of all, any trader worth his salt should understand the fundamentals and he should know how to analyze the data and come to a conclusion. A lot of them choose to trade only after the market is no longer volatile, not as soon as some news makes it change direction. By choosing to act only when the market is quiet, they lose a good chance at making a nice profit.

The second mistake we’ll talk about is how often one trades. When a broker trades often, with very small margins of profit and tight stops, he will be the one making more money. While the strategy is safer, the one making more money is the broker, not the trader.

Another thing you can do wrong is when you use a lot of leverage. The reason why traders are encouraged by brokers to use a higher leverage is because the spread income is higher, but that also means more money for the broker. Just because the broker likes it, doesn’t mean that the trader will like it as well.

Each trader should make a decision on what he needs to invest in. He needs to analyze the situation and he needs to get a conclusion of his own. Investing your money based on other people’s ideas is not a good choice. If you don’t want to learn how to invest for yourself, leave the investing to someone else.

One other way you can lose money is by putting stop losses which are tight for the retail brokers. Even though it might look like it’s the safer way, it’s actually a problem, since a stop limit which is more reasonable will let the trade develop better.

A lot of beginner traders get the idea that they know what they’re doing because of the demo accounts offered by brokers. Since the demo account is not as easily influenced by the time factor as a normal account, you get the idea that a trading system which is time sensitive can be just as profitable as you’re seeing on the demo account. The beginner will see the truth soon enough, once he begins to use real money in his trades.

Trading during the off hours is yet another mistake made by beginners. This time is used by big players, like hedge funds, option traders or banks, to influence the exchange rate, since it’s easier to make money for them when the volume of the market is down. As a small trader, it’s not a good idea to try to make money during the off hours.

A mistake which is made by quite a few beginner traders is the fact that instead of looking at the currency pair, they’re only looking at one of the two currencies. Making investments when you have only half of the story is definitely a mistake and it can result in considerable losses.

The trader should always have a trading plan. As long as you have one, your chances are considerably improved. That trading plan shows if you have that competitive edge which is so important. If you don’t have what it takes and you don’t know what to do, you will be one of the 95% of beginner traders that end up quitting the Forex market after taking losses.

One other thing to keep in mind is that sometimes you simply have to know when the trend is long term. When you see that a currency has a low price, in some cases that’s a trend which will keep going down. That low price that you’re paying might end up higher than the price at which the currency will end up. Know where the exchange rate is going, don’t just buy whenever a price goes down.

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