Investing and trading on the Forex markets is not as easy as most people think. It is not something that you can simply pick up and start making money. Instead it requires a good deal of knowledge and strong discipline to make a successful trader.
The foreign exchange markets are fraught with financial risk for the uninitiated and foolhardy. If you make the wrong moves you can suffer huge losses to your capital.
As with any form of financial investment you need to know how to make the right decisions to be able to reap the potential rewards that are on offer.
Of course on the positive side, trading with currencies offers plentiful opportunities for you to make good returns. This is the reason that so many people look to take up trading on this markets. Combine a simple Forex strategy with some basic skills and the rewards can be truly staggering.
Here are some of the top mistakes that can break your Forex trading and more importantly, some ideas of how you can avoid them.
1. Investing at Levels Beyond Your Means –
There are two types of new trader. The first has expectations of quickly retiring as a millionaire from their $100 deposit. The second invests their entire savings in the expectation of making a fortune but lacks any form of trading experience.
Both types of traders will of course have their expectations dashed but for very different reasons. Trading on the Forex market is an art. You will get killed if you don’t master the basics skills at the outset.
2. No Prior Experience –
Trading on Forex requires you to correctly back currency moves so that you end with a profitable outcome. Unless you know exactly how to make money from buying and selling currency you are going to struggle to make the right decisions to end up with a profit.
Experience is everything, so use a demo account to hone your skills.
It is important to realise that the more you learn and the more experience you gain, the more chance you have of making the right decisions.
3. Not Having Targets –
If you don’t have a map then you might expect to get lost. Similarly if you don’t have a plan then you are unlikely to product the intended end result. Setting up realistic profit targets as a part of a mechanical trading strategy will help you to trade within a structure.
Similarly defining stop levels to exit when the market turns against you will may not boost your profits but it will go a long way to limiting any loss.
4. Opening Too Many Positions –
Enthusiasm to make quick returns can lead to speculating on too many markets. This in turn can lead to having too many open positions on your account which is a recipe for disaster. Multiple open positions on a single pair or even across pairs can quickly see you needing to add to your positions to keep them open.
Correlations across trades can exponentially increase your risks and destroy an otherwise profitable trading system for Forex. Look out for them.
5. Not Listening to the Markets –
Trading in the direction of the trend has long been recognized as the best way to trade. The rates of currency pairs can fluctuate but will ultimately tend to observe the greater market forces which drive long term directional trends. Don’t be tempted to try to constantly pick tops and bottoms in the markets. Go with the market not against it to statistically in increase your chance of success.
The Forex market offers a wealth of opportunities but it should go without saying that it demands your respect. While a high percentage of traders lose money trading this market they tend do so as a result of reasons that are easily addressable had they observed some of the basic trading principles outlined above.
If you want to make money from the markets then it is essential that you trade with your eyes open and master your strategy. This will help ensure that you are able to make the best financial decisions and ultimately will assist in making better profits.