Mistakes You Don’t Want To Make in Online Forex Trading.. must read !

Every time a trader has an adventurous Forex trade with lots of ups and downs, he makes a resolution to be careful the next time and practice a cautious approach. But with the Forex fever in his blood, he is rarely able to keep his promise. 

These bad habits have been ingrained into him since he was a toddler in the game and he finds it impossible to get rid of them. These bad Forex trading habits can be broadly classified into three heads as discussed below.

1. OVERTRADING –

This is the worst habit that many currency traders have. If you do not have this habit then it is probable that you are a millionaire with the profits that you have made in the market and can now afford to sit back and relax. Or perhaps, you are using the automated system with the stops at both ends.

When a trader places one trade after another indiscriminately and too aggressively without any discipline, it is known as overtrading. When you are chasing the profits, you tend to overtrade. This is an expensive habit and you will find yourself up at all hours of the night and day. The best way to break this habit is to develop a game plan. Having a strategy will discipline you and help you actually earn profits.

2. OVER LEVERAGING –

Not many people are aware of what this term means. Everyone has heard of it but thinks that they do not have this bad habit. Over leveraging occurs when you put all your equity in one single trade. When you are glued to you computer screen following every single movement of the trade, you keep on adding money to your trade, till you finally over leverage. Trading requires a discipline and the ability to move away from a trade that is frustrating and come to it when you are in a calmer state of mind. There a three ways to break this bad habit – by having a strategy for trading, placing stops and disciplining yourself to walk away after placing the stops at both the ends.

3. NOT HAVING A TRADING STRATEGY –

This is the mistake that all traders, even seasoned ones, make. Not having a strategy or a game plan leads to overtrading and over leveraging resulting in placing more equity on a single trade or opening too many trades. Isn’t it difficult to drive if you do not know the way? Research the market carefully and study the charts before developing your trading strategy.

The best way to trade is to place a trade and then place the stops at both the ends. Now, let the stops take care of your trading limits. You will not indulge in your bad habits and be a better trader for that.

TRADING EXPERIENCE CHECKLIST 

1.Have you tried trading different time frames (intraday, swing, long term) on an ongoing basis?                                                                                                                                                             
2.Have you attempted to trade different markets (stocks, futures, commodities) on an ongoing basis?

3.Have you experimented with trading different styles (technical, tape reading, quantitative, mechanical) on an ongoing basis?                                                                                                                  4.Have you been trading on a regular basis for a year or longer?

5.Have you made major adjustments in your trading approach after becoming dissatisfied with your results?

6.Do you have a trading method that you consistently follow?

DEFINING COMPETENCE IN TRADING

I have a very simple definition of competence in trading and an equally simple definition of expertise.

• A competent trader is one who consistently covers his or her trading
costs.

• An expert trader is one who makes a consistent and acceptable living from his or her trading.

It is impossible to limit one’s definition of trading competence and expertise to the possession of particular abilities, personality traits, and skills.I know many competent traders of stock index futures who are not competent in other markets, and I know many competent position traders who could never cover the costs of scalping. Defining competence and expertise by the consistent attainment of results provides the only yardstick by which we can gauge whether participants realize nonrandom edges in the marketplace.

The inexperienced trader looks at a trade as a 50/50 proposition: Either the market will move in one’s favor or it won’t. Even if we generously assume that traders will be equally good at harvesting profits and absorbing losses—something that does not come easily to human nature, as behavioral

finance researchers have found—trading still is not an even bet. For traders to truly cover costs, they must recover the expenses of a real-time data feed, trading software, and other tools purchased to aid trading. Add to this hardware expenses for screen traders, the cost of an adequate connection
to the markets, and the expenditures associated with maintaining redundant systems (in case of equipment or connection failure), and this overhead can add up quickly.

To cover costs, a trader actually must be at least modestly and consistently profitable. This requires appreciable skills at execution, risk management, and the reading of market patterns. While covering one’s overhead is not an exciting goal, it is a necessary one along the path to greater success.
When a restaurant opens, it can stay in business only by recouping its fixed overhead: the costs of equipment, real estate, personnel, food, taxes, and utilities. 

If it can do that in a reasonable period of time, it can then afford to wait for marketing and menu tweaking to build clientele. Your trading business will need to achieve competence long before it attains expertise. As with the restaurant, breaking even will buy you the time to survive your learning curve and reach that point where expertise can earn you a decent return on your capital.

WHY PEOPLE LOSE IN FOREX ?

A difficult challenge facing a trader,and particularly those trading e-forex, is finding perspective.Achieving that in markets with regular hours is hard enough, but with forex, where prices are moving 24 hours a day, seven days a week, it is exceptionally laborious.

When inundated with constantly shifting market information, it is hard to separate yourself from the action and avoid personal responses to the market. The market doesn't care about your feelings.

Traders have heard it in many different ways — the only thing you can control is when you buy and when you sell. In response to that, it is easier to know how not to trade then how to trade. Along those lines, here are some tips on avoiding common pitfalls when trading forex.

1) Don’t read the news — 

analyze the news. Man times, seemingly straightforward news releases from government agencies are really public relation vehicles to advance a particular point of view or policy. Such “news,” in the forex markets more than any other, is used as a tool to affect the investment psychology of the crowd.
Such media manipulation is not inherently a negative. Governments and traders try to do that all the time. The new forex trader must realize that it is important to read the news to assess the message behind the drums.

GETTING THE POINT 

Market analysis should be kept simple, particularly in a fast-moving environment such as forex trading. Point-and-figure charts are an elegant tool that provides much of the market information a trader needs.
Source: Quote Spread

NEWS YOU (DON’T) USE

Often, news that might seem definitively bullish to someone new to the forex market might be as bearish as you can get.
For example, Japan’s Prime Minister Masajuro Shiokowa was quoted in a news report on Dec. 13 that “an excessive depreciation of the yen should be avoided. But we should make efforts and give consideration to guide the yen lower if it is relatively overvalued.”

When a government official is asking, in effect, if traders would please slow down the weakening of his currency, then we must wonder whether there is fear the opposite will happen. In this case, that was the outcome as on Dec. 14 the dollar vs. the yen surged to a three-year high. The Prime Minister’s statement acted as a contrarian indicator. This is what “fade the news” means. Often, a bank analyst or trader will be quoted with a public statement on a bank forecast of a currency’s move.

When this occurs, they are signaling they hope it will go that way. Why put your reputation on the line, saying the currency is going to break out, if you don’t benefit by that move? A cynical position, yes, but traders in the forex markets always need to be on guard. Read the news with the perspective that, in forex, how the event is reported can be as important as the event itself.

2) Don’t trade surges. 

A price surge is a signature of panic or surprise. In these events, professional traders take cover and see what happens. The retail trader also should let the market digest such shocks.

Trading during an announcement or right before, or amid some turmoil, minimizes the odds of predicting the probable direction. Technical indicators during surge periods will
be distorted. You should wait for a confirmation of the new direction and remember that price action will tend to revert to pre-surge ranges providing nothing fundamental has occurred.

An example is the Nov. 12 crash of the airplane in Queens, N.Y. Instantly, all currencies reacted. But within a short period of time, the surge that reflected the tendency to panic retraced.

3) Simple is better. 

The desire to achieve great gains in forex trading can drive us to keep adding indicators in a never-ending quest for the impossible dream.

THE TEN RULES FOR FOREX

Avoiding mistakes in forex trading. 

I list here ten rules that I think are important for trading forex. 

DO'S

• 1. When trying out a new trading strategy, always test it in a demo account, or with a small amount of money, before you commit more money to it.
• 2. Always keep a record of each of your trades, with details of: why you got in, how you got out and why it turned out the way it did.
• 3. Have a personalized trading plan and update it as you learn from the market.
• 4. If you are unsure of a trade, stay out. It is better to miss an opportunity than to have a loss.
• 5. When trading, keep up-to-date with both the fundamentals and technicals affecting the market. A trader in the dark is a trader in the red.

DON’TS

• 1. Don’t trade with money you can’t afford to lose! It will affect you emotionally, and you will most likely lose it to irrational trading.
• 2. Don’t follow someone else’s trading advice blindly. Always know why you are getting into a trade, and how you are going to get out of it.
• 3. Don’t be concerned about being right. Just be concerned about being profitable.
• 4. Don’t over-leverage. Chances are that your account will be decimated before you can recoup your losses and go into profit.
• 5. Don’t revenge-trade the market. Vent your frustrations elsewhere after a loss.