45 Ways To Avoid Losing Money Trading Forex

This article looks at the most common reasons why professional and new traders lose money on the forex market. Instead of learning from failure, learn how to avoid it. 1. Knowledge Deficiency Most new forex traders do not take the time to learn what drives currency rates (primarily fundamentals . !hen some news or a statement is due out, they close out their positions and sit out the "est trading opportunities# they are taught to only trade after the market calms down. $o essentially they miss the whole move and then trade the random noise that follows a fundamental price move. %ust think for a moment a"out technically trading the aftermath of a price move# there is no potential. &. Overtrading ' Trading often with tight stops and tiny profit targets will only make the "roker rich. The desire to ()ust* make a few hundred dollars a day "y locking in tiny profits whenever possi"le is a losing strategy. +. Over leveraged ' ,everage is a two way street. The "rokers want you to use high leverage "ecause that means more spread income "ecause your position si-e determines the amount of spread income# the "igger the position, the more spread income the "roker earns. .. Relying on Others /eal traders play a lone hand# they make their own decisions and don0t rely on others to make their trading decisions for them# there is no halfway# either trade for yourself or have someone else trade for you. 1. Stop Losses 2utting tight stop losses with retail "rokers is a recipe for disaster. !hen you put on a trade, commit to a reasona"le stop loss limit that allows your trade a fair chance to develop. 3. Demo Accounts 4roker demo accounts are a shill game of sorts# they0re not as time sensitive as real accounts and therefore give the impression that time'sensitive trading systems, such as short'term moving average crossovers, can "e a consistently profita"le trade# once you start dealing with real money, reality is 5uick to set in. 6. Trading During Off Hours 4ank 78 traders, option traders, and hedge funds have a huge advantage during off hours# they can push the currencies around when no volume is going through and the end game is new traders get fleeced trying to trade signals. There is only one signal during off hours it is "etter to stay out. 9. Trading a Currency !ot a "air 4eing right a"out a currency is half a trade# success or failure depends upon "eing right a"out the second currency that makes up the pair. :. !o Trading "lan ' ;Make money; is not a trading plan. < trading plan is a "lueprint for trading success# it spells out what you see your edge as "eing# if you don0t have an edge, you don0t have a plan, and likely you0ll wind up a statistic (part of the :1= of new traders that lose and 5uit . 1>. Trading Against "revailing Trend There is a huge difference "etween "uying cheaply on the way down and "uying cheaply. !hat was a low price 5uickly "ecomes a high price when you0re trading against the trend. 11. #$iting Trades "oorly If you put on a trade and it0s not working make sure you exit properly# don0t compound the damage. If you0re in a winning trade don0t talk yourself out of the position "ecause you0re "ored or want to relieve stress# stress is a natural part of trading, get used to it.

1&. Trading Too Short%term If you0re profit target is less than &> points, don?t do the trade# the spread you pay to enter the trade makes the odds way against you when you go for these tiny profits. 1+. "ic&ing Tops and 'ottoms ' ,ooking for "argains works well at the supermarket "ut not trading foreign exchange# try to trade in the direction the price is going and your results will improve. 1.. 'eing Too Smart The most successful traders I know are high school graduates. They keep it simple and don0t look "eyond the o"vious# their results are excellent. 11. !ot Trading Around !ews Time Most of the "ig moves occur around news time. The volume is high and the moves are real# there is no "etter time to trade fundamentally or technically than when news is released# this is when the real money ad)usts their positions and as a result the prices changes reflect serious currency flow (compared to 5uiet times when "ank traders rule the market with their customer order flow . 13. (gnore Technical Conditions @etermining whether the market is over' extended long or over'extended short is a key determinant of near'time price action. $pike moves often occur when the market is all one way. 16. #motional Trading !hen you don?t pre'plan your trades, it is essentially a thought and not an idea# thoughts are emotions and a very poor "asis for doing trades. @o people generally say intelligent things when they are upset and emotionalA I don0t think so. 19. Lac& of Confidence Bonfidence only comes from successful trading. If you lose money early in your trading career it0s very difficult to gain true confidence# the trick is don?t go off half'cocked# learn the "usiness "efore you trade. 1:. Lac& of Courage to Ta&e a Loss There is nothing macho or gutsy a"out riding a loss, )ust stupidity and cowardice. It takes guts to accept your loss and wait for tomorrow to try again. Cetting married to a "ad position ruins lots of traders. The thing to remem"er is the market does cra-y things often so don0t get married to any one trade# it0s )ust a trade. Dne good trade will not make you a trading success# rather, it is the monthly and annual performance that defines a good trader. &>. !ot )ocusing on the Trade at Hand There is no room for fantasi-ing in successful trading. Bounting up and mentally spending profits you haven0t made yet is mental mastur"ation and does you no good. $ame with worrying a"out a loss that hasn?t happened yet. 7ocus on your position and have a reasona"le stop loss in place at the time you do the trade. Then "e like an astronaut sit "ack and en)oy the ride, there is no sense worrying "ecause you have no real control# the market will do what it wants to do. &1. (nterpreting fore$ news incorrectly 7act is the press only has a very superficial understanding of the news they are reporting and tend to focus on one element and miss the point. ,earn to read the source documents and understand it for real. &&. Luc&y or *ood Eour account "alance changes don0t tell you the whole story a"out your trading# fact is, if you are taking a lot of risk and making money you will eventually crash and "urn. ,ook at the individual trade details# focus on your "ig losses and losing streaks. <sk yourself this ' if I had a couple of consecutive losing streaks or a couple of consecutive "ig losses, how would my account "alance look. Cenerally, traders making money without "ig daily losses have the "est chance of sustaining positive performance. The others are accidents waiting to happen.

&+. Too +any Charity Trades !hen you make money on a well thought'out trade, don0t give "ack half on a whim# invest your profits from good trades on the next good trade. &.. Courage ,nder )ire !hen a policeman "reaks down the door to a drug dealers apartment, he is scared "ut he does it anyway. !hen a fireman clim"s onto the roof of a "urning "uilding, he is scared "ut does it anyway ' and gets the )o" done. Its the same with trading ' it0s DF to "e scared, "ut you have to pull the trigger# no trigger G no trades G no profits G no trader. &1. -uality Trading Time I suggest + hours a day of 5uality, focused trading time# that0s a"out all your "rain allows. !hen you are trading, you must "e 1>>= focused ' half way is plain "ullshit and does not work. @on0t even think that time spent in front of the computer watching the rates has any correlation with profita"ility# it doesn0t. $pend less time "ut when you are trading, "e 1>>= focused. &3. Rationali.ing Filler. <"solute Filler. 2ut your trade on and let it run. If it hits your reasona"le pre'determined stop, you?re out. Moving your stop is like getting up after "eing crushed with a knockout "low# it0s pointless, things will only get worse. @on0t ignore the o"vious ' you are wrong, so get out. Bome "ack the next day and try again. < small loss will not hurt you, "ut a catastrophic loss will. &6. +i$ing Apples and Oranges Have you ever done thisI you see the JK/LK$@ trading higher, so you "uy C42LK$@ "ecause it (hasn0t moved yet*. That?s a mistake. Most of the time the reason the C42LK$@ hasn0t moved yet is "ecause its already over"ought or some .I+>am KF news was "earish. @on0t mix apples and oranges# if JK/LK$@ looks good, "uy JK/LK$@. &9. Avoiding the Hard Trades 4ank 78 traders have an axiomI the harder the trade is to do, the "etter the trade. This I learned from experience ' when I needed to "uy JK/LK$@ and it was hard to get them, that0s when it is necessary to pay up and get the "usiness done. !hen it0s easy to get them, then sit "ack and wait for "etter levels. $o if you?re trying to get into a trade or more importantly get out of a trade, don0t put- around for a few points# get your "usiness done. &:. Too +uch Detail If you are trading more than & indicators, then you need to clean house. Having many indicators stifles trading and finds reasons not to trade. < setup and a trigger is all you need. +>. *iving ,p Too #asy Eour first trade of the day may not "e your "est "ut certainly it0s no reason to 5uit. I have a preset daily trading limit and I use it# you can0t make money "y making excuses. Cetting trades wrong is natural and should "e expected. +1. /umping the *un @on0t "e penny wise and dollar foolish# wait for your trade signal to "e clear. 2ut on your trade and give it a decent si-e stop loss so that you don0t get knocked out "y random noise. @o trades and don0t "uy lottery tickets (extremely tight stops . +&. Afraid to Ta&e a Loss ' Trading is not personal# it0s "usiness. @on0t think that a poor trade is a reflection on you. It could "e you are )ust ahead of your time or a commercial order hits the market and temporarily creates a small unexpected move. <gain, place your stop "eforehand and MJNJ/ increase your pre'determined risk. If it0s going "ad, it will pro"a"ly get worse# I think that0s Jinstein (in motion stays in motionO* ++. Over%Relying on Ris& Reward There is -ero advantage in risk reward# if you put a &> point stop and a 3> point profit your chances are pro"a"ly +'1 that you will lose# actually with the spread its more like . to 1 (from entry

point if it goes down 16 points you lose or up 3+ you win# 16L3+ is close to .' 1 . +.. Trading for 0rong Reasons 4ecause the JK/LK$@ is going up is not in itself a reason to "uy. 4uying JK/LK$@ "ecause its not moving is even worse# you0re paying the toll (spread without even a hint that you will get a directional move. If you are "ored, don0t trade ' the reason you are "ored is there is no trade to do in the first place. +1. Rumors /umors are rumors almost 1>>= of the time# think a"out where in the motion you heard the rumor. If JK/LK$@ is up 1> points in last 11 minutes and the rumor is dollar negative, well then you missed it. !henever you trade, determine where in the motion you are entering. +3. Trading Short%term +oving Average Crossovers This is the money sucker of the century. !hen the shorter term moving average cross the longer term moving average it only means that the average price in the short run is e5ual to the average price in the longer run. 7or the life of me I cannot understand why this is "ullish or "earish. Jasy to set up on software, complete with lights, "ells and whistles, and good for the seller getting thousands for the software "ut in terms of creating profit, it0s a -ero. +6. Stochastic <nother money sucker. 2ersonally I think this indicator is used "ackwards# when it first signals an overdone condition, that0s when I think the "ig spike in the (overdone* currency pair occurs. To "e over"ought means strong and oversold means weak. Try "uying on the first sign of over"ought and selling on the first sign of oversold# you0ll "e with the trend and likely have identified a move with plenty of )uice left. $o if =k and =d are "oth crossing 9>, "uyP ($ame on sell side# sell at &> +9. 0rong 'ro&er < lot of forex "rokers are horri"le# get a good one. /ead forums and chats in several different places to get an un"iased opinion. +:. Simulated Results !atch out for ("lack "ox* systems# these are trading systems that don0t divulge how the trade signals are generated. < great ma)ority of them are a"solute gar"age. They show you a track record of extraordinary results, "ut think a"out it ' if you could "uild a trading system with half a do-en filters using the "enefit of hindsight, couldn0t you too come up with a great system. Df course going forward is an entirely different story. High'speed num"er crunching capa"ilities allows for "uilding great hindsight trading systems# 4J!</J. .>. (nconsistency Jvery "usiness (forex trading included re5uires a "usiness plan (trading plan . Knless you have taken the time to write down a set of rules that you can and will follow, it0s likely your trading will remain unfocused and directionless. Make a plan, have rules, follow them, set goals that are realistic, and you will achieve them. .1. +aster of !one 7ocus on one currency for technical trading. Jach currency has a uni5ue way of trading and unless you get intimate with it, you will never truly understand its underlying idiosyncrasies. @on0t spread yourself too thin. 7ocus master one currency at a time. .&. Thin&ing Long Term @on0t do it. $tay in the moment. Jspecially if you0re a day trader. It doesn0t matter what happens next week or next month, if you are trading with +> to 1> point stops restrict your thought process to what0s happening right now. That is not to stay the long'term trend is not important# it is to say the long'term trend will not always help you when you are trading in a significantly shorter time frame. .+. Overconfidence Trading is not easy# statistics show a :1= failure rate. If your doing well don0t take your success for granted# always "e on the lookout for ways to improve what you0re doing.

... *etting "umped ,p The trick is to maintain an even keel. !hen you are in a trade, you want to think exactly as you would if you didn0t have a trade on. To do this re5uires a relaxed disposition# this is not a foot"all game. @on0t get psyched up, relax and try to en)oy it. .1. Staying in the *ame I don0t recommend demo trading "ecause traders learn "ad ha"its when trading with play money. I also don0t think (letting it all hang out* right away is wise either. $tart off doing trades and taking risk that is relatively small "ut still makes a difference to you if you win or lose. <"out a 5uarter to a third of what you expect to reach as your trading matures is reasona"le.