Forex trading is the most profitable business venture one can undertake over the internet. Millions of newbies enter the forex trade each day but statistics show that a high percentage of them lose their money and give up within a month. If you are interested in forex trading, or already making money online buying and selling currencies, are you heading in the right direction or will you too just lose money and wither away? There are many factors that contribute to your success or failure in forex; here are a few things you need to know to succeed.
Pitfall 1: Forex is a risky business, but profitable. Invest everything
When you sign up with a forex broker, one of the first things they will emphasize is the issue of risk. Forex is a lot like gambling, only that there is the element of strategy. There are many factors that affect the value of currencies and sometimes they cannot be predicted, some of them are just spontaneous.
How to avoid it
The first rule of forex trading is, do not invest money you cannot afford to lose. When you trade right you will make tons of money, but there is always a chance that you might lose your money, no matter how little it is.
Pitfall 2: Second guessing yourself
A good trader is one that makes informed decisions to buy or sell because they understand what their edge is and do not put their money in unnecessary risk. Confidence is an important element in succeeding in forex, second guessing yourself before or after making a transaction cannot be good for you. Most investors are so worried before they make a purchase or a sale that they waste too much time, or they sale or buy too soon to close a transaction.
How to avoid it
What is important is for you to research widely and get to know which trading strategies are right and will earn you money then going with facts rather than with guts. Forex is all about getting to understand the conditions surrounding the value of currencies and taking advantage of that.
Pitfall 3: Trial and error strategies
Different traders use different strategies to make profits in forex. Some people make more money with long-term strategies while others prefer short-term. Some go for high leverages as high as X400 while others prefer to invest more money but stick to X10 leverage. Based on your studies and experience with a forex demo account, which strategy or strategies works best for you?
How to avoid it
Avoid trial and error strategies and stick to one or two strategies that actually work for you and will make you significant profits based on how much you are investing. If you are unsure which strategy to go for, or which currencies to trade with, then you may end up losing money in forex and join the long list of people who call forex a scam.
Pitfall 4: Making emotions a part of the trade
OK, I admit it, even I get emotions involved in business all the time – we are all human and emotions are just a part of us. However, even if you are passionate about trading and put in all your effort, letting emotions get the better of you will be a disaster because you will make decisions that will cost you money.
How to avoid it
My forex trading mentor gave me this quote that has seen me succeed in forex trading: “Always do business using your head, not your heart”. In line with this, you have to accept that trading emotionally is not the best thing to do, and do something about it. You must also not let a previous trade affect the next trade – your performance in the previous trade will most likely interfere with the next. Lastly, you should not stop trading just because you suffered a few loses, instead you need to go back to the drawing table, find out where you went wrong and find ways to fix it.
Pitfall 5: Once you make a few bucks, stop learning
The first time I got into forex, I started where most of us do – reading articles and blog posts and eventually registering for a demo account. When I was confident I could make money, I abandoned the demo account, stopped reading articles on forex trading and went live. I only came back to the demo after I lost a couple of trades. Is this what you do?
How to avoid it
You will never learn enough, you have to keep reading and especially using a demo account, even when your trades are turning out fine. My advice to you is, even those who are millionaires from forex still read about forex and get ideas from other traders and professionals. Why shouldn’t you?
Conclusion
It is very easy for you to sabotage your own trading, most times without realizing it early enough. The most frustrating thing about forex trading is the guilt that traders feel at a certain point in this venture, especially after losing some money. These are just a few crucial pitfalls that most beginner and intermediate forex traders must know.
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