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Top 10 Ways New Forex Traders Lose Money
Lack of Experience
- Forex trading - like any new initiative - has a learning curve. However, unlike learning a new skill such as learning to play guitar for instance, you are not risking your entire savings while discovering the difference between a major and minor chord. Learning about the currency markets and basic trading principles solely on a trial and error basis is not a recommended approach for gaining the skills necessary to be a successful forex trader.
Unreasonable Expectations
- First off, stop believing all the “get-rich quick” hype still perpetrated by some forex dealers. Yes, there are those that do get rich trading forex but some people also get rich selling houses. In either case, it does not happen overnight and it might take years to gain the experience and insight to turn forex trading into a full-time, successful occupation.
Absence of a Sound Trading Plan
- Next to having unreasonable expectations with regards to the risks associated with forex trading and the amount of time required to be successful, a common mistake made by new traders is the lack of a forex trading plan. In reality, there are two aspects to this plan; an overall objective for your trading activities and a plan for each trade you make.
Lack of Discipline
- A plan is only of value if you actually have the patience and the discipline to follow it. While this can be difficult, it is necessary if you expect to be successful, and it is this very reason why developing a plan prior to the trade is so fundamental. As rates fluctuate, you can easily get caught up in the market and it is only human nature that you will begin to second-guess your actions. If, for instance, the rate moves up surpassing your original take profit point, you may be tempted to hold out for an even higher return; alternatively, if the price drops below your limit level but you believe there is a big rebound just around the corner, you may be tempted to keep the order open on the hopes of a reversal.
Failure to Include Stop-Loss and Take Profit Instructions
- When you place a market order and leave it open – that is, enter a trade at the market price without instructions to close the order – you are in effect, gambling with the total value of your account. For this reason, you should consider adding stop-loss instructions to all open positions.
Excessive Leverage
- Depending on your experience level, trade leverage can be a powerful tool to help you maximize returns, or it can be the cause of your downfall. It is not something to be taken lightly and if you do not understand how it works, don’t trade until you do understand.
Holding Too Many Open Trades
- Fighter pilots call it “helmet fire” and it happens when too much is happening around you too quickly for you to react. In the cockpit of a jet fighter, it can get you killed – as a forex trader, you may not end up dead but you will probably end up broke.
Holding Losing Positions Too Long
- One of the things that really separates seasoned forex traders from those just starting out is their ability to determine when a losing trade is not going to reverse the trend. Rather than “hold and hope”, disciplined traders will take the loss and get out much more quickly.
Ignoring Rate Spread Fluctuations and the Impact Spreads Have on Profitability
- Exchange rate spreads – the difference between the bid and the ask price – are of utmost importance and directly affect the profitability of each trade. You need to be aware that spread differentials can fluctuate wildly during the day – sometimes to the point of turning a profitable trade into a losing one.
Thinking About the “Big Win” More Than Effective Cash Management (AKA Greed)
- This one is pretty straight-forward – greed; or more correctly, how greed can cause you to enter into ridiculous trades. This must be the same gene that causes some people to keep “doubling-down” even when the odds are so against them that it make no sense at all. If you want to gamble, go to Vegas.
Build Trading system/ Automated Trading/ Algorithmic Trading
This section will helps you in preparing trading systems. In modern world trading system also known as algorithmic trading. Trading system is widely used by institutions and hedge funders. The volume generates from algorithmic trading counts 70% of daily volume in NYSE.
System trading is based on predefined set of conditions and rules. System takes position based on set of rules. Traders continuously hold position in market either Long or Short. While some systems allows entry only when predefined conditions met.
In this section I have explained the calculation of various trading indicators in Microsoft Excel. You can learn how to calculate them in Microsoft Excel.
Bollinger Band,
Ketner channel,
Average True Range,
Commodity Channel Index (CCI),
Stochastic,
Gann HiLo indicator,
Directional Moving Index,
AROON Indicator,
Moving average,
Ulcer Index.
This spreadsheet contains back-testing of DOW Jones Industrial Index based on various Technical Indicators.
Wednesday 30 November 2011 : Australian market has some floor at 4075. On 5 minutes chart we have witness Head & Shoulder Formation. Market consolidated around neckline and as sold off as soon as S&P downgraded 37 major banks including UBS.
On fibonacci level market may hold 4075. Break of this may lead us 4050.
You can see XJO bounced from 4075.
Declaimer:
Do NOT use these commentaries to trade futures contracts. The commentary is to explain how to analysis patterns rather investment advise.
EURO after big selloff consolidated on 29th of Nov. On 5 minute chart megaphone pattern emerge. Target based on distance between extream High and Low within Megaphone pattern was 1.3390. EURO bounced to that level and retraced back in to megaphone range.
Stock gained 2.59% after 7 day selloff
On Friday 25th Nov Dow Jones Industrial Average closed with Head & Shoulder pattern. Monday market opened above the neckline on the back of EU bailout news and hit the target of Head & Shoulder pattern of 11560.
Daily chart of Dow Jones (29th Nov)
Australian Index future (APZ1)
Market Pattern
We have witnessed clear Head and Shoulder pattern across global market. I’m sharing with you chart of Dow Jones Industrial Average ended 22/11/2011 and APZ1 (Stock Index Future Australia)
Fireworks in Gold stopped ? Andrews Pitchfork support – 1487
Gold Anaylsis (16/12/2011)
Volatility in Gold is pointing up after break-out witnessed in August 2011. As I mentioned before nice support exist at 1537 (Head and shoulder pattern) and then 1487 (Pitchfork) – 1500 (Trend channel). In coming days first stop on upside is at 1620 which is 200 day moving average.
On weekly chart Gold is now out of parabolic circle suggest price to remain weak.
On weekly chart we are getting nice support around 1487 as per Pitchfork.
Gold – Head & Shoulder pattern unfolding power, slide 5%
Gold slide more than 5% from yesterday’s close. Gold now fell $ 120 from the level recommend. Gold train stopped at end of trend channel, 1620 at close of US stock market. I expected bounce up to 1652 but we rallied only up to 1643. As I warned tick below 1620 lead sharp fall.
Few Support for Gold Prices.
Head & Shoulder Pattern – 1537
Lower end of Trend channel – 1500
Gold is set for bounce
Yesterday I mentioned two key levels – 1640 as per H&S pattern and 1620 as per trend channel. We hold 1620 for the day. I expect some bounce today, target level will be 1652. However If we successfully break 1620 the fall will lead towards 1522 and then 1492 (Target as per Head and shoulder pattern).
Silver has taken support at Head & Shoulder neckline. Persistence weakness can lead silver prices lower; 27.5 and then 26.5.
Gold price has support of 1642.
Yesterday I have mentioned that Gold price is looking weak. It fell sharply to low of 1660 from 1691 (the price I mentioned). Gold price has neckline support of 1642 – 1650 (Head and Shoulder Pattern). Below this Gold can slip towards 1620 (Trend channel support).
Gold prices pointing for lower levels.
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