Safe TradeSunday, 13 August 2017 05:06
Forex is one of the most active markets, which is steadily growing. First of all, new traders are attracted by the convenient online trading anytime and everywhere in the world. However, on the road to success newcomers have to go through some mistakes that can lead to significant losses. Sometimes, a beginner has to follow the clear rules to avoid such errors: don’t try to earn more than is possible in particular situation, learn more and assess your abilities right.
We will take a look at the most common mistake, below. It’s worth noting that even experienced traders sometimes make such errors, which leads either to significant losses or at least to the unpleasant experience on the exchange.
How to Avoid Losses?
If a market participant avoids these wrong actions, the increase in profits from trade will not be long in coming. So, among the main misconceptions, it’s worth highlighting at least six of them.
1. Trading without a trading plan. At first glance, it may seem easy to predict the movement of the price; especially, if you already know the basic principles. You can learn the principles of the trend interaction with the levels of resistance and support. However, without a proper plan, the unpredictable price movements can lead to significant losses.
- Determine the direction of your positions;
- Estimate the level of the real possible profit from the transaction, and set the take profit;
- Determine the proper level of losses, and set a stop loss. Remember that it’s impossible to predict the behavior of an asset with a 100% probability. According to statistics, only 70% of transactions are profitable.
2. Emotional decisions. It is evident, but many traders forget to calm. Trade only based on the real data, guided by the chosen strategy, analyzing the indications of technical tools. Don’t try to earn on a losing deal by watching how the price moves in the opposite direction, and waiting for a reversal. Whatever is a number of your losses, or profits, stay calm.
3. Management. Not only the Forex trader but also any person working in the financial sphere must study the rules of money management entirely.
- Don’t trade for money borrowed;
- Don’t invest all your funds in a single broker;
- Do not increase the volume of transactions by more than ten times;
- Monitor losses;
- Keep the ratio of the possible profit to losses 3:1.
4. High leverage. On the one hand, the benefits of a high leverage are visible, but on the contrary - the risk, in this case, increases as well. Don’t increase the leverage. Try to set the limits for each transaction correctly and keep them.
5. Too many transactions. If you are faced with a series of losses, there is often a desire to increase the activity, to "recoup." It’s worth remembering that such tactics can only multiply your losses. Take a pause, analyze your actions. You may ignore the fundamental factors. Or maybe your strategy won’t bring profit anymore, and it’s worth changing it.
6. Lack of training on demo accounts. Even if you think that you have found the ideal technical tools, or just discovered a new, super-profitable strategy - don’t rush to enter the real market. Remember that any strategy and any tools have their drawbacks. And it's much safer to learn about them, trading on a demo account, saving your finances.
Never forget about the volatile nature of currency markets. Forex trading is a job that requires a proper preparation and financial skills. Try to take such a job seriously, and you will learn, how to receive a safe, stable income.