Trading Forex and Common Mistakes

Filed under: Learn Forex Trading |

 

There are certain mistakes and misperceptions that beginners to forex trading make, and I would like to run you through some of these mistakes and misperceptions right now.

 

To begin with, most beginner traders seem to focus on the lower timeframes, thinking that they will get more opportunities to trade and thus make more profits. However, this is simply not the case. On the lower timeframes, the spreads eats into your profits more as you stop losses tend to be tighter, and the signals generated on the lower timeframes tends to be less reliable. On the higher timeframes (such as the 4-hour charts or the daily timeframe), the levels of support/resistance are respected more, and price action signals generally hold more weight.

 

One of the main focuses of beginner traders is to find the right system for trading, especially the entry point and exit points. In truth, the entry and exit point is not quite as important as one might think. Studies have been done with random entries in the direction of the trend, and timed exits, showing that these variables are not as important as expected. Conversely, not enough attention is given to money management and risk by beginner traders, and these are very important variables for being profitable in the forex market. Risk-reward is a similarly important variable, and it is the combination of getting the right balance for all of these variables that makes a successful trader.

 

Trading psychology is also an important aspect of trading. Many beginners like to blame something for their failings – such as brokers trying to scam them. However, it is much more likely that they are doing something wrong themselves, and learning to take responsibility for your trades is a key aspect of your trading education. In summary, find a good trading strategy, but also put some of your focus on money management, risk-reward, and trading psychology.  If you do this, I’m sure that you will be a much more successful trader.

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