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FOREX Trading - A Major Reason Novice Traders Lose

Article Summary: Is not because they are wrong about trend direction in FOREX trading – in many cases there right, but they can’t turn their prediction into gains, because they can’t cope with one common problem, which is:

Is not because they are wrong about trend direction in FOREX trading – in many cases there right, but they can’t turn their prediction into gains, because they can’t cope with one common problem, which is:

Volatility!

A common scenario is for a trader to enter a trade, see the trend temporarily reverse and stop him out.

The trade then goes back the way he thought and piles up thousands of dollars and he’s not in!

The real challenge for any FOREX trader is not just to enter A trade with the best risk reward, but to know how to place and move stops, so that he can prevent himself being stopped out early and milk the trade for all its worth.

The rise of online FOREX Trading

Has increased volatility and sharp price spikes up or down, against the prevailing trend are more common than ever.

Today, all the news is available in a split second, at the click of a mouse and this by its very nature causes sharper more volatile moves.

So how do you cope with volatility?

Here are some tips to help you when trading currencies.

1. Trade sparingly and be patient.

Trade the longer term moves from breakouts of major resistance.

These levels are ones that the market sees as important and if they break, then a trend is more likely to continue than reverse.

It’s a fact that most major trends start from new market highs, NOT New market lows, so trading breakouts is highly effective and potentially lucrative

2. Don’t day trade

If you really want to be caught out by volatility then day trade; prices can and do go anywhere in a day and you will lose.

Day trading is the biggest mugs game out and you will never find a day trading system that makes money over the longer term – PERIOD

3. Learn Where to place stops

Stop placement and money management, is just as important in FOREX trading as picking market direction.

If you are trading breakouts, stop levels are obvious i.e. behind the breakout point, based upon the closing price being strong.

Perhaps the biggest problem traders have is they are so afraid of risk they actually create it.

Once they have a profit they want to protect it, move the stop to close and get bumped out the trend.

Many trends when they develop have sharp recoils back and you need to be patient and not move your stop.

You are going to see dips in open equity that are painful and see your gains eroded in the short term.

Cope with the above though and the longer term rewards are great.

In conclusion, you must give the market room to breathe.

4. Use a target

Have a target your happy with and then, move your stop.

By this time you should have been following the trend for a while and will end up with a meaningful profit – the rest is then gravy.

5. Learn to use options

Your risk is limited to your premium yet, you have unlimited profits.

An option allows you take short term price swings against you, with the comfort of limited risk.

If you are using options, get plenty of time to expiry and trade at, or in the money options only.

Getting stopped out by volatility before a trend develops or when a trend is just starting to make gains, is a major problem for all traders.

Coping with volatility the key to FOREX success

To help cope with it, follow the above tips and make sure you have a complete understanding of the concept of “standard deviation”, which is covered in our other articles.

If you can cope with volatility, you can make some great profits from FOREX trading online and stay with the big trends that pile up the big profits.

While other traders get stopped out and are frustrated you will be smiling!

Article Source: http://www.upublish.info

About the Author:
sacha Tarkovsky
GRAB 3 X FREE ESSENTIAL TRADER PDF'S AND MUCH MORE! On all aspects of becoming a profitable trader including features, downloads and some critical FREE Trader PDF's and more FREE Forex Education visit our website at http://www.net-planet.org/index.html