Forex Trading Traps: 4 Tips How To Avoid Them

You open an order, the market goes against you, trading systems do not work, the order is closed by Stop Loss – you need to urgently compensate for your loss! Finally, the market has gone in your direction, but Take Profit is still so far away, you need to close the order manually and make at least some kind of profit… and suddenly the trend has reversed! And this is how deposit after deposit vanishes, be it a demo or a real account. Sounds familiar? It really does to many forex traders. It takes considerable time before many traders take into account such an "insignificant" aspect of trading as psychology.

First of all, we begin to study technical analysis, strategies, somehow master the fundamental analysis and completely ignore the emotional factor. However, the skill to control your emotions differentiates a professional from a beginner.

Before you become a trader in the forex market – you need a goal. And it is very important that you have a clear vision of how you will achieve this goal. A trading plan will not only serve as a reminder of your goals, but will also help you focus on achieving them. Moreover, by keeping a record of all your transactions you will be able to evaluate your level of skill and you will have a great opportunity to learn from your mistakes.

Most traders on the forex market are bound to loose


We start with the toughest principle in order to remove rose-colored glasses, if any. Everyone can not make money on the forex exchange. Otherwise, it will run out of money. On the forex exchange, money from one pocket flows into another, from one hand to the other. Your profit is someone's loss. Your loss is someone's profit.

The main obstacles to success are divided into three stages:

  • Greed and extreme self-confidence.
  • Fear of loss, self-doubt.
  • Excitement.

What stage are you at?


Some traders go through all three of these stages in turn, without even realizing it. Salvation are books on learning forex trading and personal experience, because in them the trader often discovers the true self. Much has been written about all the emotional turmoil the traders goes through. However, practical advice on how to overcome your weaknesses, how to gain emotional stability, so that neither your earnings nor your loss will be out of balance are extremely scarce.

In the forex market, the one who conquers his emotions wins.

Calm, relaxed, focused market surveillance. Emotionless. Without excitement. In this case, you have a chance to win. If you cannot wait, there is no discipline, you want to prove something to the market who is right and who is not, then most likely you will lose money. And you may have the best trading system in the world, but because of emotions, you will have losses.

So:

Tip 1. Greed and self-confidence


Each of us is sure that Forex is an easy and fast way to make money. But no one pays attention to the speed with which most of us, financially illiterate players, lose all their money in a matter of days or hours. Why so? The fact is that the desire for quick money overshadows our mind, and excessive self-confidence puts on rose-colored glasses. In this state, we feel like geniuses, from which we are actually very far.

The main task is to keep your trading account. For this:

  • We determine the trading system (all trading strategies are tested only on a demo account).
  • Choose a leverage depending on the amount of the deposit (the smaller, the safer your funds).
  • We define risk management, it should not be more than 5%.
  • Calculate how much you want and how much you can earn per month, transfer to points - this is your goal.
  • Never deviate from the goal, this desire is just an emotion.

Remember: you are not a professional yet, self-development is the only way to success. Books, video tutorials, seminars, tips from more experienced traders, new trading strategies – study all this for 1-3 hours every day.

Several of your deals closed by Take Profit, which is good. You rejoice, and joy is an emotion. In such an elated mood, you open up new (wrong) deals that will bring you losses. Hence the conclusion: won – take a rest. For a day or two, you will calm down and be able to look at the charts again with a clear head.

The order closed in plus on Take Profit, and the price still goes in your direction. Never open a new order. Do not trade "after"! This is greed, it will destroy you as a trader. Follow the target.

When your position feels good, it will be an excellent idea to save part of the result before it is too late. The point is that the luck will end eventually. Therefore, worry about yourself before this happens. Use Take Profit and Stop Loss orders to counter unexpected jumps in price.

Never regret the missed movement, you do not jump into a moving train in real life, nor do you in forex trading. You lose money, succumbing to emotions. There will be another strong movement, and then one more, and so on. The market will not get away from you, but you can easily get swept from the market.

Never open a lot of contracts! This is the maximum risk. Maximum up to 4 per day.

Tip 2. Fear of loss, self-doubt


Successful trading on a demo account and the first successful transactions turned my head (if there were any), but after several transactions you went into a minus, contrary to all expectations, and the deposit decreased significantly. How so? You relaxed, lost caution, and therefore, lost the ability to fully analyze the situation on the market. Here the first doubts creep in, you unwillingly admit that everything is not as simple as it seems. The question arises: "Is it mine?".

At this stage, most beginners leave. What seemed simple and understandable before, has now finally brought us to a dead end. You can blame everyone and everything for your failures (broker, trading system, teachers, amount of deposit, etc.), but you are the main source of failures.

Since all Forex trading is mainly based on the emotions of a trader, risk management serves to eliminate the emotional component and give orderliness to the process. The total profit is the sum of the results of profitable and unprofitable transactions.

What we do:

  • If several transactions in a row go to minus "for no apparent reason", go for 2-3 days to a demo account. Re-work your trading strategy, gain confidence.
  • Never panic. If you got stuck with this feeling, temporarily stop trading.
  • If you see that the order will be end in the plus, do not close it manually, otherwise you will never make money. Wait until it reaches Take Profit, if you are emotionally incapable of sustaining it, or move the Stop Loss to breakeven. After that, rest the day.

“Misinterpreting”


Most people misunderstand what the forex market is. Someone thinks that the exchange is a scam and earning profit on it is unreal. And the most interesting thing is that people who know nothing start arguing the most. There are those who look for a grail and those who look for a magic wand. In fact, the grail is your work on yourself and here you’d better truly give your 100%. I always say that a trader as an athlete who must train constantly.

The market went against you – it happens. Do not sit in front of the screen and do not hypnotize the schedule, it will not turn around. First of all, its’s not good for your health. Secondly, if you see that you made a mistake, close the deal manually. This will be no more than 5% for your deposit. Learn from mistakes.

When a novice investor sits at a computer and opens a trading platform, he often feels like a stock exchange magnate at the control panel of super profits. This is a deceptive and insidious feeling. Trading is not a game and not entertainment, it is a work with a busy schedule, high nervousness, requiring knowledge, skills, analysis skills and courage in decision making. Therefore, be sure to determine your goals, time and professional assistant (broker) who will accompany you on your way to the forex market. In this case, success accompanies reasonable.

Financial market is all about probabilities


A trader deals with probabilities. Nothing is carved in stone. There is a chance that a particular tool will go up or down. Probably, most likely, presumably, perhaps – these are the words that can be used to describe trading. Otherwise everyone would have earned. And the money would have ended long ago in the financial market.

  • Trade pending orders. Entering instantly, you can be mistaken, or a price correction will affect SL.
  • When you lose confidence, start trading with a minimum volume.
  • Always put Take Profit and Stop Loss.

If the price has touched your order, never move Take Profit and Stop Loss, because now you are again giving in to emotions. Remember that you correctly set them up the first time after you analyzed everything sensibly, and moving them is not recommended. The exception is the movement of orders to breakeven.

Keep statistics. Only complete and detailed statistics on trade can answer all the questions: where is the problem with the strategy, what can be improved, how do the results change over time and so on. Testing and optimization is the basis, without which any algorithm will very quickly lose its relevance. You can not develop an algorithm that will trade all your life profitably.

Tip 3. Excitement


If you are a gambler, don't even start trading! You do not have the courage to miss the movement. You can easily open a deal against the trend, and your profit will be minimal, and the losses will be maximal, as well as the degree of nerve downturn. The eternal state of semi-madness with elements of hope. If you are less or not gambling at all - you can make your way into the future only through self-discipline. Cold blood is your success.

In conclusion, I want to say: dear traders, do not rush. Understand your heads. The market was before you and will be after, it will not go anywhere. Success or failure depends only on your thoughts and feelings.

Trading in financial markets is a high-risk earning tool. Making a profit in the trading process is not yet the key to the success of all trading activities. It is very important to learn not to lose income. Risk management is part of a trading system that points to a specific number of lots used at a certain point in time trading. In other words, this is a rate control.

Break is a very important part of risk management. A tired brain is not so brisk in thinking which increases the chance of making mistakes. If you feel tired, then it is time to take a break and enjoy what has already been done.

Tip 4. Provide yourself with sufficient capital.


Most traders fail because they don’t have enough money to trade. I'm not saying that you should have hundreds of thousands of dollars to start, but the general advice of all professional traders is this: there is nothing to do with a deposit of less than $ 5,000 in the Forex market. Why so much? By the fact that at the beginning, almost everyone loses.

The market does not forgive mistakes


If you forget to put the document number, date or stamp on normal work, then all this can be corrected. You can cancel the payment. Make a reversal. The vast majority of errors and omissions can be corrected. In the financial market, everything is different. For every mistake you pay out of pocket. They saw the wrong signal, misunderstood the analyst, pressed the wrong button, did the wrong analysis, etc., and eventually went "wrong" (for example, sold instead of shopping). The market will hit you afford.

Remember: "Successful trading is 90% of emotions and psychology and 10% of trading skills".

Author: Kate Solano, Forex-Ratings.com
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