Many people take trading less seriously than they should. They are taking positions worth more than $ 500 based on little more than a guess. Most traders fail because they lack discipline and face the psychological pitfalls of Forex.
Make sure you have a well thought out scheme before you start trading. Your analysis should include potential deficiencies as well as anticipated risks. So, for each position you take, you need to set a limit and a stop / loss order.
Set smart trading limits
To avoid the psychological traps of Forex, for any selected position, choose a profit target, which will allow you to make good money on the position without actually being in front of the monitor. And the loss limits should be large enough to accommodate normal market swings, but less than your target profit.
This is a simple concept, but difficult to follow in practice. Many traders abandon their predetermined plans on a whim, closing a winning position at a profit before prices hit because they are nervous and afraid that the market will turn against them. But the same traders can hang on a losing position, rolling back the loss limits, hoping to somehow recoup their losses.
Sometimes traders push back their loss limits multiple times just to see the market come back in their favor. This can lead to error and loss limits are counterproductive. Nothing could be further from the truth! Stop / loss orders are in place to limit your losses.
No trader makes money on every trade. If you can win 5 out of 10 trades, that's good. How, then, do you make money with only half of the winning positions? Set smart trading limits. If you lose less on the losers than you make on the winners, you will benefit.
Don't get hung up on your trading
People are emotional, which is why they often cater to the psychological traps of Forex. It is easy to do an objective analysis before taking a position. It is much more difficult to control yourself when you have the money invested.
Position traders tend to analyze the market differently in the hope that it will move in a favorable direction, ignoring changing factors that might be turned against their original analysis. This is especially true when positions are unprofitable. Traders tend to 'fixate' on a losing position, ignoring signs that indicate continued losses.
Do not spray
Don't abuse trade. A common mistake novice traders make is overusing resources. For example, 100,000 units of currency only require $ 1000 as a minimum security deposit, but this does not mean that a trader with $ 5000 in an account should trade 5 lots. One lot is equal to $ 100,000 and should be treated as a $ 100,000 investment, not $ 1,000 posted as margin.
Most traders analyze charts correctly and trade wisely, however they tend to use leverage. As a consequence, they are often forced to close a position at the wrong time. A good rule of thumb for trading is to use a 1 to 10 ratio or not use more than 10% of your account at a time. Currency trading is not easy, because if it were, everyone would become millionaires!
