The Top 3 Mistakes To Avoid Trading FOREX
Chris K • onFinance 10 years ago • 6 min read

The Top 3 mistakes To Avoid with Foreign Exchange (FOREX) Trading

Nowadays, Forex trading has gained enormous currency among both institutional and individual investors and it is becoming one of the most lucrative avenues of making profit, exploring one’s skills, and reinstating a strong business identity. In addition, it is one of the most liquid trading markets in the world with average daily dollar volumes in excess of $2 Trillion dollars (yes – trillion with a “T”).

However, like any other business endeavor, people investing in Forex are also susceptible to certain mistakes that can eventually become very painful, both financially, and emotionally. This article is meant to help you recognize some of the more common mistakes and pitfalls of FOREX trading, so you can pursue it (hopefully) more informed and empowered to overcome these situations, improve your trading, and increase your Forex trading profits.

Mistake 1: While considering the mistakes, the first one that appears on the list is forgetting to make sure you identify with and decide upon a trading strategy and a time horizon that your Forex activities will be primarily dictated by, such as, day trading. In many instances, investors and traders alike are involved in trading the daily movements between pairs of currencies, such as the US Dollar and the Euro, and with that timeline - pay attention particularly to the short-term goals. In many cases, day traders loose sight that the real success is made by consistently managing your positions over the long haul, keeping tabs on the longer term trends, and focusing on a longer term business model that will be more profitable and personally rewarding if done properly.

So, in case you are planning for a short term business, and that quick hit runaway million dollar trade, it is better to avoid doing so and keep in mind that there are numerous market conditions and socio, economic, political, and regulatory nuances that create FOREX movements. Because FOREX trading profits are typically made by being on the right side of the variations in prices and the volatility that comes with certain positions, sticking to a well defined trading strategy and time horizon for which you’ll trade is always one of the best starting points to consider.

Trading with a fully tested and strategy mapped FOREX system similar to the one found at www.BankersDream.com will help you mitigate some loss taking and help to create a more sustainable and less irrational and emotional environment to conduct your Forex trading.

You need to understand the advantages and disadvantages of the trading strategy you plan on deploying as well as how it coincides with the time horizon that you’ll typically be moving in and out of your positions. You are the best person to judge what is right for you and what is not. As far as my opinion goes, I would definitely consider deploying technology to take as much of the thinking and human error factor out of the equation, designed of course according to the trading patterns, time horizon and strategy that I’ll be basing my trading on. Keep in mind that long term success not only earns you good will and a growing base of knowledge, compounding positive returns over a longer period of time can creates an amazing and dramatic base of capital.

Mistake 2: The second mistake people often make is to ignore the fact that there is a combination of both art and science in Forex trading. In many cases, there are people and investment groups that manage highly successful Forex trading that is dependent on specific formulas and algorithms that incorporates fundamental data and technical indicators that result in trading systems (the science).

While some may think these trading systems are baseless, keep in mind that the human element went into the actual design, testing and fine tuning of any trading system to make it work where it is consistently profitable in terms of the percentage of winning trades versus losers over a particular timeframe, number of trades, the percentage of losses as compared to your capital base, and more likely than not – a combination of these.

The art piece of the Forex trading equation is both taking into account as many of the elements that are inherent in a particular currency or pair, as well as going with your gut without letting your emotions or mental limitations get the better of you in your decision making. Remember – you cannot move the market – it moves you where you can only react by way of processing, managing and making a decision based upon the information you have available to you.

Mistake 3: The third mistake done by the traders is to rely on extra knowledge, or too much information. Many traders fall into the trap where they seek unending data to justify their position taking or their trading thesis, instead of really trying to understand what information would be the most useful and applicable to their trading strategy, and particular currency or pair that is being traded. Information overload is easily accomplished in the world of trading, and especially with Forex, where it can leave you paralyzed, confused and otherwise, toast.

I am not stating that you should stay away from information or not do your research, rather, its equally, if not moreso important, to understand why certain data (fundamental and/or technical) is more relevant and useful in making a trading decision as compared to other data sets, and what has historically proven to be most effective with your trading style, as well as what has worked for others in the past. Optimizing data relevance and data utility can easily be the difference between making a good trade vs. making a bad trade, or missing out on a golden opportunity.

This should result in trading with better ease and with greater efficiency, while minimizing the brain drain. One of the best ways to manage information, the decision making process, as well remove the number crunching and the human element for error is by utilizing a trading system that is optimally programmed and wired for profit making trades – check out a fully automated and tested trading system at www.BankersDream.com

In short – when it comes to Forex trading: keep it simple, understand and know the waters you’re about to get into before you dive in, leverage technology to take care of the mind melting analysis work and number crunching, and make a plan and stick to it while continually testing and tweaking it for improvements. Happy Trading!

-Chris


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