A lot of forex traders take shopping more seriously than trading. Some people would spend about $500 without researching and examining a particular product carefully. But, numerous traders take positions, which cost them over the said amount based on a few more than a hunch.
Most of forex traders fail due to lack of discipline. Make sure that you have your own plan in place before starting to trade. Your analysis must include the potential downside and expected upside. Therefore, for each position you take, you must place both a stop/loss order and limit order.
Set Your Own Smart Trade Limits
For every trade, pick a profit target that will allow you to make good money on the position without being unachievable. Select a loss limit that’s big enough to accommodate the normal market fluctuations, yet smaller than the profit target. Lock these when using limit orders as well as stop or loss orders. This concept is one of the hardest things to follow. Majority of traders abandon their predetermined plans, closing the winning positions before the profit targets are reached due to the reason that they grow nervous that the market could turn against them. However, those forex traders hang on to losing positions very well past their loss limits, which hope to somehow recover losses.
There are also cases that forex traders see loss limits hit several times only to see the forex market go back to their favor once they’re out. It may lead to mistaken belief that it’ll always keep happening and this loss limit is counterproductive. Nothing might be further from the truth. Stop or loss orders are always there to limit the losses. Through setting smart trade limits, you can get more profits.
Never Marry Your Trades
Everyone is emotional. It’s easy to do objective analysis before you take a position. It’s much harder once you’ve got invested money. Traders holding positions analyze the market in a different manner in the hope that it’ll move in the right direction, ignoring the changing factors, which might have turned against their analysis. It’s especially true when your losses are taken on a position. Some traders tend to marry losing positions and disregard the signs that point toward losses. If you don’t want to end up with failure in forex trading, then avoid marrying your trades and try to embrace change as the market continues to fluctuate.
Like managing a business, there are a lot of risks involved in forex trading. But, if you will be cautious of the psychological pitfalls of some traders, you can easily get rid of losing positions and you will be able to avoid losses and gain profits instead. Forex trading is simple if you are willing to embrace all of its pros and cons. If you understand everything about currency trading and you are willing to take risks through trading wisely and effectively, expect that good things will come and you will gain nothing but more profits.