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FOREX TRADING 101 CONTD ~ forex news trading techniques
in my last posting, I promised to provide answers to some questions. To do this, I will first make an attempt to provide an insight into the reasons why most traders, failed with live accounts. These reasons are: a) Lack of knowledge or understanding of the forex market: Majority of new traders jumped into forex trading without adequate knowledge of how the market works. And it well-known fact that people perish for lack of knowledge. Such traders jumped into forex trading without being equipped with adequate knowledge on how the market works and ended up being swallowed within an instant. If you don’t have enough knowledge on how the market work, never open a live account or only open micro accounts with less that 1o% of the amount you wish to trade with. b) Most new traders think forex market in an avenue to get-rich quickly:Most new traders including this author are attracted to forex because of the misinformation that forex trading is an avenue to make quick money and the ultimate solutions to your financial worries. In fact, I was actually attracted to forex by the information that I can make between 10-30% of my account within 24 hours. How wrong I was! I started trading with the mindset to double my accounts every month. To achieve my target, I overtraded by opening many positions at the same time and whenever the market is in my favour, the reward is usually mind boggling. However, whenever the market turn against me, the consequence are usually disastrous. Most times, after increasing my account by 60% over two weeks or three weeks period, I often ended up blowing such accounts within two to three hours when the tide turned against me. The lesson is you should aim at realistic returns on your investments and increase your returns over time as you acquire knowledge, experience and expertise. c) Under-capitalisation: Most new traders started trader with gross under-capitalisation and ended up being annihilated within seconds. Most people starting with ridiculous low amount of between $100-$500 and expect to turn it into millions within months. How ridiculous! In a market where $1.5 trillion dollars are traded on a daily basis, majority of the traders are small flies capable of being crushed in milliseconds. Forex is business and should be treated as such. My advice is if you don’t have enough capital to start trading, don’t ever dream of opening a live account. The fact that you don’t have capital should not discourage you. For a start you can build your trading capital over time while acquiring skills through demo trading. If you have less than $1,000, don’t ever dream of trading live. d) Lack of trading plan: Most new traders enter trade without adequate trading plan or no plan at all. Such trading is akin to crossing a twenty-lane highway with your eyes close. For such a pedestrian, death is a sure certainty. Plan your trade to the last detail before your entry. Your plan should include, entry point, expected profit and exit point and retreat strategy (stop loss) if things go against you. Stick to this plan because it is your only chance of survival in this high risk endeavour. e) It is not compulsory that you must enter any trade:Most new traders never want to miss any opportunity. No trade opportunity is compulsory as there are many more trade opportunities by the corner. f) Be very sure of the direction of the market before you enter a trade Most inexperienced traders believe that they can predict or anticipate the direction of the market end enter a trade with such erroneous belief. This is usually not the case. Most of them are often fooled by what sideways movements. For moving averages, look for sharp angles and an obvious degree of separation between the two lines to determine upward and downward trend. Once this separation is obvious and a few candles have opened higher than the previous (lower than the previous in the case of a downwards trend) the market has shown its true colors. At this point, you should be looking to pull the trigger. g) Profit should never be your main motive principle Most new and inexperienced traders go into trading thinking that they could begin to make profit instantly. The fact of the matter is that most businesses do not begin to make profit until their fifth anniversary. Furthermore, most financial investments would be rated 1st class if they are able to return between 10-20% annually. In spite of these obvious facts, most traders think they can achieve a return of between 30-100% on a monthly basis. In other to achieve their unrealistic target they gamble away money and ended up being losers. The forex graveyard is full of greedy traders. Please don’t be part of the casuality. Your profit target should be realistic. If you are able to achieve a return of between 2-5% on a monthly basis, you would have outperformed most blue chips investment outfits in the world. As a new trader, fund preservation should be your number first priority and profit distance second. Once you acquire experience, making profit will come naturally. h) Cut your losses and live to fight another day Most new traders hate losing money by closing loosing trades. They often leave such with the expectation that the market will turn around in their favour. The resultant effect is that 40 pips ended ground to 100, 200, 200 and perhaps 1000 pips. The main message is cut your losses and live to fight another day! i) Psychological deficiencies Majority of new traders are psychologically deficient to handle trading live trading. Their trading is guided by inadequate knowledge, greed, desires to get rich quickly amongst others which are perfect recipes for disaster. As a new trader, make your trading as mechanical as possible because you definitely lack the psychological control to handle live trading. Live trading is high pressure game and is not meant for the inexperience and faint-hearted. In my next post I will address how to be a successful trade. Happy reading! |
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