The 3 Worst Things To Do When You Are Trading Forex
- Date: 2008-10-17 - Word Count: 730
Share This!
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.
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.
Related Tags: retirement, currency trading, forex trading, investments, forex, money management, trading plan
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: www.pipsalot.com Your Article Search Directory : Find in Articles
Recent articles in this category:
- Sbi Best Sip Plans 2010
SBI Mutual funds have introduced many mutual schemes. Each scheme has different limitations. SBI SIP - Icici Sip Plans 2010 - Best Sip Plans
ICICI Prudential offers many schemes. These fund schemes have SIP. What is SIP? SIP's expansion is S - Determining Where To Invest Money
There are several kinds of investments, also you will find numerous factors to find out where to inv - Retirement Plans A Necessity Of Life
A person works whole life to give a decent upbringing to his children and families. But while improv - Stock Market Timing Signals
Follow the PlanThis would seem a statement of common sense, but the fact of stock market timing sign - A Selection Of Financial And Investment Strategy Guidelines For Turning A Profit
Yet, we don't often have the money to leave work right at this moment. We need a constant salary to - Find Out The Profitable Way To Invest In Small Cap Stocks
Everyone wants to find a penny stocks list or other investment strategies that can turn your literal - Portfolio #4 - Watergate
IntroductionThe problem is not that the world is running out of water. No, the problem is that drink - Dulton Group: Information Content Of Dividends
Dulton Group helps you to analyze the information content of dividends, an important factor affectin - Coping With Fear In A Markets
The real fact is that all traders, investors as well as stock market investors, who feel afraid, occ
Most viewed articles in this category:
- Investor Stress: A New Approach
George Muzea is both an investor and a stock market advisor. In any given month, he will be paid $10 - Real Estate Investment Financing
1. Location: Your real estate investment's location is arguably the most important component of your - Canadian Oil Sands - Who Are the Major Players
The Canadian oil sands represent one of the most lucrative investment opportunities to oil and gas i - Why Bulk Preconstruction?
Bulk preconstruction is the latest trend in secure, high profit real estate investing. By buying wit - Investing - It Is Not As Scary As You Think
Many people want to have more money - OK everyone does. However, most people don't know how to go a - How Do I Know Which Programs Are Scams?
Although it is virtually impossible to tell if a HYIP is a scam until the moment when they stop payi - Currency Trading Success - 6 Tips to Increase your Profits
If you want to increase your profit potential and achieve currency trading success then the simple t - The Business Cycle
Investors who want to beat the market should be followers of the business cycle. The business cycle - Pros and Cons of Real Estate
Like any other profession, there are good and bad things about what are available. Each of the thin - The Fixer Upper
Real estate investing has become almost a national pastime. Millions are made every year on the buyi