Fourteen common mistakes committed by every forex beginner and how to avoid them ~ forex trading demo mac
1. Trading forex everyday
Forex trading should be a part time affair. We have noted in previous articles that trading forex everyday is a bad idea for the forex beginner. Forex is not a typical career with requirements that turn you into a wimp of routine. Unless you are trading the lower timeframes, which we discourage, there will be no signal forming on the daily or 4 hour charts that will allow you to take trades everyday. But there are more than fifteen currency pairs to trade from, you say. Yes, but we encourage trading only the major currency pairs and keeping true to that means you wont encounter your trading strategy everyday. Your edge will be present once or twice a week if you are lucky. You have no business with the forex market over the weekends or on holidays when the London Stock Exchange or the New York Stock Exchange are closed.
2. Trading the lower timeframes
Trading the lower time frames is good- but it is reserved for those who know what they are doing. No forex beginner can afford to trade a market with a chart below the 4 hour time frame. A lot of your trading signal is available on the lower time frames. But they are not as reliable as when traded on the higher timeframes. It is all good to enter and exit a trade within an hour or minutes, but that thrill has its own disadvantages. The fast and the furious way of trading are not for the typical forex beginner. Personally I love trading the 4 hour chart considering the region I live in relation to the time when confirmations on the New York Close charts form. Waiting for the confirmation would mean being awake at 1 am. I’m better of with the 4 hour charts, but no matter how sure I am of a signal on the 1 hour chart, I won’t trade it. Not unless there is a nozzle of a machine gun pointing to my head.
3. Not using a stop loss
Nothing insures your forex portfolio than the stop loss. No forex trader is a connoisseur of the future and as such no one can tell whether the trade they take will be a winner or loser. There is no justification therefore for letting a trade to run without some measures of damage limitation in place. Absence of a stop loss may cause a margin call and lead to the draining of your account in a single trade. Absence of a stop loss may actually cause you to last longer in a trade and even get some huge returns. But the advantages of having a stop loss in place far outweigh the dangers of not using it.
4. Activating the trailing stop early in the trade
The trailing stop is good- but only to the point that it is activated after the market has moved and reached a particular level in your favour. Remember that a trailing stop cannot be moved backwards. Forex beginners tend to set a trailing stop when the market has just moved 0.5 of their risk. The effect is that if the market moves back, as it’s always bound to do, the trailing stop will be triggered and you’ll be off the market at a loss. The trailing stop may be set when you’ve acquired a risk reward of 1:1 which will mean exiting a trade at the breakeven point which is normally the best reward for most forex beginners in the first few months in their trading of forex online. The recommended point would be after achieving a risk reward of 1:1.5 and above. At least if the trailing stop is triggered you will have acquired some small returns.
5. Shifting the take profit further when market moves in your favour
Two things can define a forex beginner who shifts his take profit target when already in a trade; greed and ignorance. The forex beginner is ignorant to the aspects of risk reward. He probably enters a trade by the mere reason that his trading signal has formed. He does not realize that in forex the exit is just as important as the entry. The exit must be planned for before hitting the enter button. That means understanding the aspects of risk reward and major support and resistance levels. Greed can also blind even those who are aware of risk reward ratio and the markets support and resistance levels. Shifting the take profit and then hurriedly exiting a trade when the market turns against you deserves no empathy or sympathy. Greed has dire consequences in the trading of forex online.
6. Fighting the trend
You should take the market as you find it. Zoom in and out to discover the real trend of the market. You could be shorting a market that is still on an uptrend. That is a mistake. Before trading the 4 hour chart, you are often reminded to check the daily charts and make sure that the trade you enter in the 4 hour chart is in the direction of the daily currency movement. For example, if the EUR/USD is on an uptrend on the daily chart, it means that you will be going long on the 4 hour chart. That implies that if your trading edge is present you will not short the 4 hour chart because that will be going against the trend. Be sure though of the trend in the 4 hour chart because you must also take into account the signals that form at the confluence levels. They may mean a retracement from which you might gain by trading in the opposite direction of the movement in the daily chart. Never fight the trend. Keep with the herd no matter your level of conviction.
7. Trading all currencies
You cannot trade all currencies. They all come with different attributes and the hours within which they are best traded. Personally I know the currencies that do well for me on the 4 hour charts and those that do well on the daily charts. But the bottom line is that as a forex beginner you should rely on the major currencies. They should be the first place you jump into the pool of online forex trading. Relying on the exotic currency pairs will be diving into the deep end of the online forex market and you are bound to drown. Currencies apart from the major ones have a tendency of abnormal rise and falls that scrutinizing a daily chart looks like trading the one hour chart. For some the moves are just slow and it may take weeks before your risk reward ratio is achieved. Some of those currencies also come with a high spread value and it may take a while before you pay for that and gainfully be on a trade.
8. Hunting for exact tops and exact bottoms
Some forex beginners think that the market must always touch on the exact top or bottom depending on its trend. That is a mistake. Markets don’t move on a straight line. They rise and fall through retracements before they can test a previous high or low or before they can create a new high or low. Hunting the exact tops or bottoms is the main reason why most forex traders shift their profit targets whenever the market is running in their favour. They falsely think that the market will keep rallying to their desired direction. Shifting a take profit order even by two pips might cause you to lose in a very nice trade that has already brought in a profit. If you are not sure of what risk reward ratio is, then you are probably in the habit of shifting your take profit target. You must appreciate that a market will tend to retrace back at major resistance or support levels. As long as you have entered a trade in which the major support or resistance levels are two times your risk, it is advisable to exit the trade either manually or when your take profit level is triggered. There is no need of shifting the profit target and yearning for more.
9. Relying on softwares, robots and indicators to trade
We’ve noted elsewhere that forex indicators orsoftwares don’t work except in a fairy tale realm. Marketers that promote indicators that promise 200 pips and above are cons out to fleece many forex beginners. Majority of forex beginners tend to believe that trading forex is simple through using software and indicators and spend hundreds of dollars on things that never achieve any result. Learn the psychology of forex trading- that is the holy grail forex trading system. Not the good for nothing forex indicators and software being marketed around.
10. Shifting the stop loss to trade a large lot size
Another mistake committed by most forex beginners is the belief that they are risking more with a large stop loss and gaining more with a large lot size. As long as a trader knows the exact amount he is willing to risk per trade, the stop loss distance should never be an issue. The lot size you trade is dependent on the number of pips between your entry and stop loss. Adjusting the stop loss o trade a bigger lot size increases the dangers of being kicked out of a trade due to the use of a tight spread. You have no business trading live forex if you do not understand how lot size and stop loss operate.
11. Openingmore than one trading position
This is normally the case with forex beginners who do not want to trade upon confirmation. They rely on the OCO (One Cancels the Other) order in trades. For example, when trading the inside bar, they short and long the trade so that if the confirmation is for or against their position, they gain and lose at the same time. They gain by entering the trade earlier than the careful traders who wait for confirmation. They lose because when a stop loss is triggered their forex account is credited. The tactic is to make you enter early in a trade but it also makes you lose in the process. Forex beginners also tend to open more than one trade for different currency pairs. For example, having a live trade on the EUR/JPY daily chart and on the 4 hour GBP/USD chart. It sounds good until they all turn into losers. Your trading life is shortened faster than that of a forex beginner trading only a single currency pair.
12. Over-leveraging
Leverage can work for or against you. But quite often it will work against every forex beginner that mishandles it. Just as it has the capacity to double or replenish your account, it can also drain your entire forex capital on a single trade. Leverage is a sharp sword with an uncanny tendency of cutting both ways. It is not your friendly tool no matter how juicy it may be presented to you. It is the single most reason why many forex beginners are exiting the trading of forex online with great losses and disappointment. Do not over-leverage. Trade the lot size commensurate with your level of risk. If you are trading two lot sizes, be sure that you won’t be left in a mess if leverage works against you.
13. Carrying emotioninto your trading of forex
Markets do not care who you are. Whether you break a glass for a trade that goes wrong is insignificant in the online forex sphere. The emotional cloth should be discarded at the gates the moment you decide to enter a live forex trade. In forex, what is to go wrong will go wrong no matter how careful you may be. Feel normal whether a trade turns into a winner or loser. That is the best way to grow as a forex beginner and have an objective look of the markets.
14. Trading the news A forex beginner has no capacity to sustain a trade dependent on news. First you’ve got to be an information junk. Second you must be prepared for the psychological impact brought about by the trading of news. Avoid the markets whenever an important news affecting the currencies you are trading is about to be released. Devastating news on a currency pair can also mean that the market will fall without heeding to your stop loss and your entire account will be wiped out.
Conclusion
It is my hope that you will take the above points into consideration before entering your next trade. Probably you will reduce on the number of trades you have so far been taking per week. Maybe you will undertake a wise decision on the currency pairs you are going to trade. I also hope that you will discard all the indicators on your charts. Whatever you choose to implement, I wish you success as a forex beginner.
You do not need huge capital to start trading. Open a trading account with NORDfx and trade both forex and binary options for only 10 dollars.
Call us today on 0725 050 419 for the best forex trading orientation.
You do not need huge capital to start trading. Open a trading account with NORDfx and trade both forex and binary options for only 10 dollars.
Call us today on 0725 050 419 for the best forex trading orientation.
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