Anyone who says that making money as a forex trader is easy, is either consistently lucky with their trades or not being totally honest with themselves.
It is definitely possible to be a successful forex trader but it does require a combination of skill and discipline to make regular profitable trades over a long-term.
Successfully trading FX online is about developing a winning strategy and having the mental capacity do deal with the psychological aspects of trading that can sometimes cloud your judgement.
Here is a look at some of the classic trading mistakes that you have to eliminate and avoid if you are going to enjoy continued success as an FX trader.
The dangers of averaging down
If you use averaging down as a strategy, you will not be alone, but there are some good reasons why it is not a good way to trade.
The principal problem with averaging down is that by holding on to a losing position, you are sacrificing both valuable time and money, which could be better utilised elsewhere.
When you lose some of your capital on a trade, you will need to achieve a larger return on your remaining capital in order to recoup those losses and get back into the black. Averaging down can work, but it will almost inevitably lead to a large loss or margin call due to a trend often lasting longer than a trader can last financially and mentally.
Anticipating news and data releases
Pre-positioning can seriously hamper your chances of long term profitability and you are likely to lose out more than you gain by trying to second-guess and anticipate how markets are going to react to certain news.
Even if you call an announcement correctly such as the Federal Reserve holding on to rates, you cannot confidently predict how the market will react to this news. There are volatility surges and unexpected surges that can make pre-positioning look like an easy way to erode your capital.
Following the headlines
Another trading strategy to avoid is the temptation to trade immediately following news headlines that hit the markets.
It may well seem like easy money to ride the waves either way and make some relatively easy pips, but if you do this on an ad-hoc basis and without a specific trading plan that you follow each time, it can be a gamble that does not pay off.
Wait for volatility to subside and instead look to profit from a definitive trend, once it emerges.
The casino approach might prove you have nerves of steel and anyone trading markets is gambling of course, albeit with different risk profiles.
No matter how confident you are in a particular trade, excessive risk should be avoided as excessive risk does not automatically mean you are going to enjoy excessive returns as a result of your gamble.
The vast majority of traders who risk any more than 1% of their capital on one single trade, or the equivalent of their average daily profit over a 30-day period, will ultimately be counting their losses in the long run.
Nothing wrong with being cautiously optimistic or even confident in your own ability, but you should never trade with unrealistic expectations.
The only certain way of reining in your expectations to more acceptable levels, is to formulate a proven trading plan and then stick religiously to it. If you don’t expect more from a system that it is capable of providing, then you should be more successful than if you hold unrealistic expectations.
Don’t get mad
Revenge trading is to be avoided at all possible cost. It is very easy to feel that the market owes you after you have suffered a loss that could have been avoided.
What happens with revenge trading is that you up your stake to get back what you feel you are owed, only to find that the market doesn’t work like that most of the time, and you end up digging yourself into a deeper hole.
Keep your emotions in check and don’t try and take revenge on the market, it won’t work.
Another classic trader error is to be blighted by nervous or even incoherent trading decisions, caused by a loss of confidence after you suffer some losses.
You cannot win every time and successful traders can keep a lid on their emotions and will simple execute their trading plan, paying little attention to the emotional highs and lows that can so easily cloud your judgement and affect your confidence if you let it.
Reginald Barnett is a qualified social marketing expert and internet entrepreneur with 5+ years experience in web design and internet marketing. He focuses his skills and efforts mainly in the forex trading industry, continually learning and sharing a wealth of knowledge with others.