As a forex trader, you’ve probably read dozens of how-to guides about how to trade successfully in the foreign exchange market. However, in an environment as complex, volatile and liquid as forex, it’s equally important to know what you should not do while trading. The following article contains a list of ten things traders shouldn’t do while trading forex.
- Don’t gamble
Some traders think they have a grip on this, but they don’t. Before you execute a trade, ask yourself whether it’s based on logic. You don’t always have to be right, but you always have to be thinking about the risks and returns of each trade you take. Outside this, you risk playing a game of chance with your forex account. This is the definition of gambling.
- Don’t let emotions control you
Humans are emotional beings, but letting your feelings control you may destroy your trading career. Just as losing too often may cause a trader to trade more in hopes of winning back what they lost, a string of wins may make a trader overconfident. Both may lead to overtrading.
- Don’t trade without a plan
Unfortunately, many forex traders don’t know their technical analysis from their risk management strategy, let alone have an underlying plan to connect all the dots. If you don’t have a plan that prepares you for different trading situations, now’s not the time to be risking real money.
- Don’t look for instant results
Although trading may allow you to earn more money than other forms of investing, it’s still a very long process. Getting to the point where you’re earning consistent returns takes a lot of time, effort and patience. Looking for instant gratification is a sure way to let your emotions get the best of you.
- Don’t set your stop losses too tight
Stop losses are an important tool for forex traders, but setting them too tight may lead to disaster. You need to give your trade enough room to develop and placing your stops too close negates this.
- Don’t ignore the news
Although technical analysis drives much of the forex market, fundamental analysis can be just as critical. Not convinced? Simply monitor the forex markets after a key policy announcement or economic news release. You may not enjoy following the news, but it’s one of the keys to succeeding in the forex market.
- Approach expert advisors or forex robots with skepticism
This is especially true if you’re a new forex trader. Be aware that many of these are scam that offer you incredible to believe returns by doing very little work yourself. The truth to successful trading is putting in the grind yourself – if it looks too good to be true, then it probably isn’t!
- Don’t pick a broker because of their bonus
Forex bonuses are one of the greatest things about online forex trading, but shouldn’t be the reason you pick one broker over the other. Many sub-par brokers are popping up everywhere promising massive bonuses to lure new traders. Many of these brokers end up folding after a few years. Choose your broker wisely and make sure they are well established and fully regulated before you deposit money.
- Don’t listen to the “experts”
You’d be shocked at just how wrong the “experts” are about predicting the financial markets. This extends far beyond forex trading. While it’s important to read daily technical and fundamental analysis, always take forex predictions with a grain of salt because that’s all they’re worth. No matter how convincing someone sounds, they don’t have a crystal ball. Learn to think for yourself and draw your own conclusions.
- Don’t think in dollars
In the forex market, it’s very easy to get caught up in the dollars and cents. This isn’t the best way to go about it. Your goal should be to make as many pips as possible. When trading a currency pair, think in pips (i.e. the smallest price change that an exchange rate can make), not dollars.
This top-ten list probably reflects the majority of reasons why many forex traders don’t succeed. By applying most of what you learned, you stand a better chance of having a long and prosperous career in forex trading.
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