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Titled: The 3 Worst Things to do when you are Trading Forex
The 3 Worst Things to do when you are Trading Forex
Article Summary: There are many mistakes that a trader can make when trading. Most mistakes depending on their severity are usually account killing types. Even the slightest mistakes can be very costly to you. We are not talking about picking your nose when you should be watching the screen!
There are many mistakes that a trader can make when trading. Most mistakes depending on their severity are usually account killing types. Even the slightest mistakes can be very costly to you. We are not talking about picking your nose when you should be watching the screen! Here are the 3 most common and deadliest mistakes that traders make when trading Forex.
Mistake 1: Failure to trade your plan! This is the mother of all killers, in fact close to 60% of failures are attributed to this one mistake. This is no simple oversight on your part, this is a glaring deliberately attempt to kill your own account. The honest fact is that after hours and countless amounts of resources have gone in to building your trading plan, we give it up at the last moment or worse during the trade. This speaks of 2 very important factors here, one is that there is a lack of confidence in the plan and two is that emotion has taken over the trading process. Lack of confidence can be easily cured by fundamental analysis and research. Emotional discipline is a lot harder to address, we as humans make a lot of decision based on how we feel and not on what we think. In trading that is disastrous and kills more trades than another other factor.
Mistake 2: Over leverage! Almost all my students who I work with when I examine their failed portfolio, the most glaring mistake is that they were sorely over leveraged. Leverage when used properly is a very powerful tool. Used unwisely it becomes a tool of mass destruction; it will massively destroy YOUR account! A lot of marketing propaganda use the words margin and leverage interchangeably. This is a mistake and these two terms are not the same thing. Leverage simply said is the broker’s money. Margin is your money. When you first fund your account you use your own money to start things up. Unless you use $10,000 or more to fund your account, you will need to borrow some money from the broker to trade. Thus comes about the terms of 1:100 or 1:500. That means with $10,000 you can control $1,000,000 of trading capital! This allows you take on larger volumes than what you normally would. What kills you quick is the fact that over leverage makes you lose money 100 times faster as well. When you over leverage and a trade goes against you, your account falls below an acceptable level and that leads to a margin call. That means the broker has to close your positions and then take your money to cover your trading losses. You have effectively given up control of your money to someone else. You have just killed your account.
Mistake 3: No Money Management Rules or poorly executed money management policy.
This is another killer mistake which afflicts most traders. Money Management is closed liked to the above mentioned section on leverage. In fact if you have good money management you can make mistakes and still be profitable! The problem is that most money management rules are dead boring and frankly there is little instruction available on this topic. Look at the site mentioned below for more information.
Money Management is not an art; it is a science which gives to the trader a sound platform to conduct trading in relatively safety. For instance you start your account with $10,000 and each trade you take you use 10% of your account. How many trades can you lose before you get wiped out? The answer is 10 trades. Now instead of using 10% you use no more than 5% of your account to trade. This effectively doubles the number of times you can lose. Unless your trading plan really stinks or you have an issue with emotional discipline as long as you keep to your set up the likelihood of you losing 10 times in a roll is very slight. Proper money management is also concerned about your profit objectives and your stop loss. There is too much to write about money management to be able to fit into this article. Visit the site to find out more.
In conclusion keep in mind that these are the top 3 killers for all traders. Being humans we will make mistakes, just try not to make too many mistakes and you will be fine.
Article Source: http://www.upublish.info
About the Author:
Dr Joshua Geralds
Dr. Joshua Geralds is a successful investment specialist with over twenty years experience increasing the income of people world wide. For a limited time get his free Money Management to a Million Dollars e-course here: http://www.pipsalot.com
Keywords: Forex, trading+plan, forex+trading, money+management, currency+trading, investments, retirement
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