Whether you’re new to trading on the foreign exchange (forex) markets or you’re a seasoned professional, there will be times when things don’t quite go as planned and you lose money or don’t maximise your profit potential. The reason for this may be that you experience a lapse in discipline or focus. It could also be because the market is behaving in an unexpected manner, whatever the cause, this could be a signal for you to reassess, refocus and examine what went wrong.
Refreshing your trading strategy and taking time to evaluate market developments may just be the thing to help get you back on track and back into profit. The following tips will act as a useful checklist to help you avoid making common forex faux pas and losing money.
- A Platform You Can Trust
Many traders are now turning to online trading platforms rather than traditional trading brokers and as this is widely seen as a positive development for the trading community, it is important that you choose the right platform for you. Such platforms offer easy access to thousands of trading instruments and are a trouble-free way of trading, particularly to new traders. ETX Capital are one such platform and they offer a secure and trouble-free service that is user friendly. ETX Capital Traders are privy a vast amount of information and support, as well as exposure to thousands of markets, including forex. The message here is to choose an online platform wisely.
- Jargon Busting
Newcomers to the forex trading world can be a little bewildered by the sheer amount of new words and terms that are commonly used. Doing your homework before you begin to trade lays the foundations for a smooth and profitable trading experience.
- Stop Loss Strategy
Your stop loss strategy needs to be calculated in advance of opening a position. It is all too easy to spot what looks like a good opening point for a trade, take the position and then think about your stop loss order, but if there is an unexpected turn in the market, this can lead to you losing more than you are happy to. Taking losses is all part and parcel of trading, but minimising these losses can make the difference between being successful or failing in the long term.
- Stop Loss Jitters
Continually lowering stop loss orders, in hope that the markets will start to move your way, is invariably a mistake. You should have a plan and stick to it to make sure you maximise your potential for success.
- Top of the Charts
If you want consistent success in your forex trading endeavours, then knowing how to read charts effectively and using this to your advantage day-to-day is paramount. Mistakes can be made by not properly considering the information that is right there in front of you. Make sure you are monitoring the markets over time using chart time frames. It is useful to see how stock is performing in the here and now, but using a wider time frame will give you more accurate information regarding trends – “the trend is your friend”. Support and resistance levels are also an ally – these indicate floors that the price is unlikely to fall below and ceilings that the price is unlikely to rise above and so are helpful when deciding if you should buy or short.
- Being “in the know”
In contrast, even if you are a dedicated technical trader, it would be a mistake not to take heed of world news and events, this is forex after all. Use apps such as Twitter as a newsfeed, often breaking news can be found here in advance of seeing on television or on the radio. The recent slowdown in the growth of the Chinese economy has had significant effects on markets worldwide. News agencies such as Reuters can be a reliable way of tracking and confirming important information that can help you stay a step ahead of the markets.
- Trading Traffic Jams
Overtrading is to be avoided at all costs, as it can lead to a multitude of problems. It is common for traders to trade too often with the “I’m on a roll” feeling. This means that you are constantly open to risk and less able to monitor your positions carefully. Having too many open positions means you are reducing your ability to ride out storms, should the markets turn against you. Use a disciplined trading strategy to avoid trading gridlocks.
- Little and Often
Large positions have been many a trader’s downfall. Trading forex allows you to use leverage, that is to say, you don’t have to pay the full amount of money up-front. This can lead to a false sense of security and to large losses. Make sure you do your sums and work out exactly how much you can afford to trade. It is better to do smaller trades and take small profits regularly and with reduced risk, than it is to risk all on one big trade.
- Keep your Eye on the Prize
Not monitoring your positions closely is a sure-fire way of not maximising your potential profits and is a mistake to be avoided. Forex trades twenty-four hours a day and so it is important to have a routine that involves regular progress checks and to keep up with market developments.
- Overnight Sensation
Looking to become an overnight sensation by making a huge amount of profit in a very short amount of time is a mistake that you can easily be drawn into making. It may be worth asking yourself if taking a realistic profit on a position is better than holding on to your position too long and thus risking a turn for the worse. Be ambitious, but not reckless!
A careless, emotion driven and uninformed approach to trading on the forex markets, is likely to leave you out of pocket and disillusioned. But, simply put, being disciplined and using a system that includes as many sensible precautions as possible, teamed with an informed and conscientious approach can pave the way to profitable trading and good times.
