There are plenty of foreign exchange websites dedicated to explaining tricks of the trade and ways to succeed when it comes to being new on the market, but often times it isn’t so much what you should be doing as what you should avoid doing that will help you the most in these sort of ventures. The Forex is a volatile market to get into due to the constant roller coaster ride that the economy constantly seems to be taking the world on, so it’s difficult to be successful if you aren’t careful to keep your mistakes to a minimum. This isn’t the place you should be “learning as you go along”, it’s better to have a clear cut plan of action and know how to utilize it to best benefit your goals. Of course there are plenty of reasons why some traders will fail in this particular market, but for five of the top players in foreign exchange investor’s downfalls, read on below.
Not Letting Go
Allowing what could have potentially been a small blow to your portfolio become a rapidly increasing large one is one sure way to watch yourself fail in this market. It’s so easy to be sucked into how rapidly the change in economy ups and downs can change that clinging to that hope that your small loss will become a win is a looming temptation, but even the most successful trader’s need to let go at some point and lose a little to regain ground later somewhere else. David Rodriguez of Daily FX writes:
This is exactly the mistake we watch time and time again: traders are too willing to hold onto a losing trade in the hopes that it will come back.
You’re not always going to win in this market, and it can be so easy to come in thinking about investing in a way similar to betting on a hand of poker. If you don’t know when to fold and walk away you’re going to blow your bankroll on what could have been a minor let down.
Over Trading
As mentioned above, there are obvious aspects of this system that resemble gambling, and of course taking risks are a huge part of any investment you’re going to make, even when they’re relatively low. This can cause you to overestimate your abilities or the market’s fluctuation and rather than not pulling out in time, you could disrupt your changes for succeeding by putting too much money into one place, and not enough in the other. Nial Fuller of Learn to Trade the Market advises:
Trading can indeed be very similar to gambling if you do not control your emotions, which is mainly done by effectively managing your risk.
Of course you’re going to make more if you invest more, but when you’re not sure of the outcome, it isn’t wise to put too much money into one pot in the hopes that it will pay off for you. If the tides turn and that currency takes a turn for the worst you’ll wind up losing more than you can afford to and ruining everything that you’ve built up so far.
Not Sticking To the Plan
Having a plan in the foreign exchange is like having a lifeline on a game show, if you don’t make a proper outline and stick to it, you might as well just be throwing your money in the air and hoping that you catch whatever comes back down. Forextraders.com suggests:
Not only does the elated trader need to take their profits out of the market by liquidating the trade and realizing their profit, but they also need to stick to their trade plan in doing so.
Too many times a trader will find themselves successfully making a big amount in the market, and in their celebratory state, they’ll veer off of their original plan and put it all back into another currency, or let it ride out where it is, rather than liquidating the way that they had originally thought they would. The schedule and plan you make for yourself is there for your protection so that you don’t get caught up in moments like that and waste the positive results you’ve experienced thus far.
Going In Blind
Just because you have a plan outlining the way you want to trade, what times you’ll do it, which broker you’re going with, where your stop losses are going to be and how much you’ll invest, doesn’t mean that you can just wing it every day. This market is constantly on the go; unlike the stock market that opens and closes at certain times daily, the foreign exchange allows you to trade night and day, so things change frequently and you can get in and out of trades just as quickly. This means you’ve got to have an eye for the news. Investopedia expresses:
The most successful traders adapt to market changes and modify their strategies to conform to them. Successful traders plan for low probability events and are rarely surprised if they occur.
As new information comes to surface you’ve got to be willing to be flexible in your approach and goals and change as the market does so that you don’t wind up staying in an investment that looked good yesterday but is slowly on the decline.
Being Uneducated
Finally, it isn’t enough just to check online blogs, read news reports, and keep your eye on Forex sites for information pertaining to the market, currencies and changing rates, you’ve also got to educate yourself on the process at hand. If you’re new to this market, don’t just come in swinging hard, assuming you know what you’re doing and make investments that sound good based on what you’ve read. You need to practice and learn about the mechanics of the system before you can be successful. There are many ways to do this including interacting with a financial advisor, finding a good broker who will work with your hands on while you get used to the market, or by taking advantage of the practice sites and demo accounts that allow you to trade risk free on real time.
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