Three Forex Mistakes to Avoid

Forex trading can be very profitable and Forex trading can be an endless series of losses. In order to profit from trading currencies and avoid losses there are three Forex mistakes to avoid. These have to do with scams, your approach to trading and the twin trading demons of fear and greed.

Forex Scams

Periodically the Forex news reports a Forex scam. An investor is enticed into giving money to a Forex trader who promises huge profits. The so called trader is running a pyramid scheme in which the first investors are paid money from subsequent investors but that money is presented as trading profits. Years ago we wrote about ways to avoid Forex scams.

[I]f it looks too good to be true it probably is. Really, a guy has a system that returns twenty percent per month per month or so he says. That would mean that he would double his own money every four months and increase his trading capital eight fold in a year. So why does this guy bother to deal with you? If he starts with $10,000 he has $80,000 in a year, $640,000 in two years and $5,120,000 in three. First of all these sorts of results are probably not what the guy you are talking to can make. Second of all, if he really makes that kind of money then you are not in his league and he will not be talking to you or trading your money for a few percent of the gain. There is no free lunch in Forex trading.

This is the first of three Forex mistake to avoid. Don’t fall for stories of easy profits. Forex trading can be profitable but it is a job. You need to learn the ropes, pay attention and show up every day for work.

Not a Casino

Successful Forex trading is not gambling. A joke in Spanish is that the word casino is appropriate for what happens there. Casi no means almost never! We wrote recently about Forex technical analysis. It is absolutely possible to let the past predict the future and profit thereby.

Modern Forex technical analysis works because it is based on statistics, the history of the market. Signals that have a high degree of reliability are used to predict the next market move. This system works the best with high trading volume and liquidity. Thus the best way to use Forex technical analysis is with major currency pairs.

The second of three Forex mistakes to avoid is trading without a system, a plan. Hunches don’t work when trading currencies but systems do. Learn to analyze fundamentals and technical cues in the Forex market and you will find profits.

Fear and Greed

This has to do with diverging from your system. Too many traders devise strategies for trading but don’t follow those strategies when the market is charging ahead or plunging. They get greedy for more profits or afraid of losing everything. The third of three Forex mistakes to avoid is letting the psychological demons, fear and greed, insert themselves in your trading. Create a sound Forex strategy and stick with it. That will mean taking profits while the market is rising and cutting your losses when technical cues say to do so.