Making investments in the forex is one of the smartest ways to broaden your trading portfolio, and make a profit, but only if you know what you’re doing. Too many people throw their trade into one pot and let it run its course, rather than being strategic in their processes. Don’t let the intimidating nature of the market leave you unsure of what to do next; read on below for a list of 3 rookie mistakes to avoid in order to come out profitable.
Don’t Jump On the News
One thing many traders seem bet their luck on is the changes in the news, and although it’s a good idea to use this information to your advantage as far as knowing your market goes, it can be disastrous to make assumptions. Investopedia writes:
News announcements often cause whipsaw-like action because of a lack of liquidity and hair-pin turns in the market assessment of the report.
It’s one thing to grab some pips when the market is about to rise, but doing so the moment a headline strikes could leave you wishing that you hadn’t. You need to have a plan for your trades no matter what currency seems to be rising or falling, and jumping in without one is kind of like abandoning ship with no life raft; you could sink or swim, depending on the tide.
Stop Your Losses
Many traders make the vital mistake of allowing their investment to ride far longer than it should in the hopes that the market will bounce back. This is an easy way to lose your entire account on a rookie mistake. An alternative to letting it continue to decrease as the market dips is to use a stop loss order; alpari.uk.co suggests:
When you open a trade, you can set a stop loss order; this is a point where the trade will automatically close if the market moves to that position.
The opposite of this is called a take profit order, where you place a cap on how high you’d like to follow the market before halting. This keeps you from going too high and running the risk of losing it all when there’s a sudden drop. Don’t foolishly toss your investment in wherever you think is a good place to start and let it run its own course, or you’ll soon find that the course you’re on is one that leaves you penniless.
Using Indicators
Although there’s nothing wrong with utilizing these helpful tools now and then, new traders just getting into the market will often rely solely on what these indicators are telling them, which means they aren’t properly learning how to read a price chart. This can distract you from knowing what highs and lows may be coming in the market because you spend so much time looking at the Forex through these indicators that you won’t see the information right in front of you. If you want a long term advantage, learn to make readings properly and then use tools like this as a secondary option when you need some quick facts.
What it really comes down to is that you utilize common sense and that you are consistent with this approach. Never let emotion coming to play when you take those decisions, because in most cases, you will find that your decisions will be based solely on reactions. Any type of investment requires a good amount of research and objective thinking, as this will ensure that you don’t get overly excited when you should be conservative, or overly conservative when you should be taking advantage of the current conditions.
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