4 Common Forex Trading Mistakes That You Should Avoid Making Yourself
James Woolley
September 22, 2009
Lots of traders come into forex trading assuming they are bound to make lots of money. However it should be pointed out that the majority of people end up losing money in the long run. So why is this? Well here's four separate examples of some of the most common mistakes these losing traders will make.
1. Trading against the trend.
Many aspiring traders use a share trading mindset when trading currencies. So in other words they will try to buy low and sell high (or do the opposite when opening a short position). I actually tried this myself when I first started trading, however while you can potentially make some decent profits trying to catch the top and bottom of a trend, it's also extremely difficult to do.
You should find that it's a lot easier to always trade in the same direction as the overall trend because even though you may not make as much profit, at least you will always be opening positions where the probability is very much in your favour. In other words even if you get your timing completely wrong the trend, is highly likely to continue and therefore come to your rescue.
2. Short-term trading.
Short-term trading is very appealing to a lot of traders. This is because it is exciting and sometimes very profitable. Many people think that they can generate significant profits by opening lots of short-term trades throughout the day with modest profit targets being anything from 3-20 points per trade.
The problem with this particular idea is that not only is it very difficult to do, but there is always the chance that your broker will find out that you are trading lots of these short-term positions and possibly cancel your account as a result, or at least make things difficult for you by increasing the spreads.
3. Over-leveraging yourself.
Another way you can end up losing money trading currencies is to use too much leverage. For instance most traders agree that the ideal staking plan involves risking no more than around 3% of your overall trading capital per trade. So if you decide to target the big gains by risking say 10% or 20% you are likely to lose a large chunk of your capital when you end up opening a position that goes against you. In addition a few consecutive losing trades could really destroy your capital.
4. Employing forex robots.
Forex robots have exploded in popularity in recent years. In fact pretty much every week there is at least one more of these forex robots being released onto the market. However the truth is that the vast majority of these expert advisors will fail to generate any profits in the long run.
The problem most of the robots have in common is that they are unable to adapt to changing market conditions. Furthermore you will also generally find that a lot of them will be configured to employ excessively large stop losses that are a long way away from the opening price, whilst only targeting much smaller gains from each trade. As you can imagine this is always likely to end in disaster.
So if you can try and avoid making these four common mistakes yourself, there is no reason whatsoever why you can't become a highly profitable forex trader.
Click here to read a full Forex Time Machine review and to discover lots of free tips and strategies relating to forex currency trading including the exact 4 hour trading strategy that James Woolley uses to trade the markets.
1. Trading against the trend.
Many aspiring traders use a share trading mindset when trading currencies. So in other words they will try to buy low and sell high (or do the opposite when opening a short position). I actually tried this myself when I first started trading, however while you can potentially make some decent profits trying to catch the top and bottom of a trend, it's also extremely difficult to do.
You should find that it's a lot easier to always trade in the same direction as the overall trend because even though you may not make as much profit, at least you will always be opening positions where the probability is very much in your favour. In other words even if you get your timing completely wrong the trend, is highly likely to continue and therefore come to your rescue.
2. Short-term trading.
Short-term trading is very appealing to a lot of traders. This is because it is exciting and sometimes very profitable. Many people think that they can generate significant profits by opening lots of short-term trades throughout the day with modest profit targets being anything from 3-20 points per trade.
The problem with this particular idea is that not only is it very difficult to do, but there is always the chance that your broker will find out that you are trading lots of these short-term positions and possibly cancel your account as a result, or at least make things difficult for you by increasing the spreads.
3. Over-leveraging yourself.
Another way you can end up losing money trading currencies is to use too much leverage. For instance most traders agree that the ideal staking plan involves risking no more than around 3% of your overall trading capital per trade. So if you decide to target the big gains by risking say 10% or 20% you are likely to lose a large chunk of your capital when you end up opening a position that goes against you. In addition a few consecutive losing trades could really destroy your capital.
4. Employing forex robots.
Forex robots have exploded in popularity in recent years. In fact pretty much every week there is at least one more of these forex robots being released onto the market. However the truth is that the vast majority of these expert advisors will fail to generate any profits in the long run.
The problem most of the robots have in common is that they are unable to adapt to changing market conditions. Furthermore you will also generally find that a lot of them will be configured to employ excessively large stop losses that are a long way away from the opening price, whilst only targeting much smaller gains from each trade. As you can imagine this is always likely to end in disaster.
So if you can try and avoid making these four common mistakes yourself, there is no reason whatsoever why you can't become a highly profitable forex trader.
Click here to read a full Forex Time Machine review and to discover lots of free tips and strategies relating to forex currency trading including the exact 4 hour trading strategy that James Woolley uses to trade the markets.
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