| When I first got into forex trading 5 years ago, I | | | | trade the news exclusively. This is good but you |
| was just like any other newbie. I had messed with | | | | have to understand that news about forex can |
| stock market day trading a little and was attracted | | | | create major swings in the market and spark "minor |
| to the market because of its high yield potential. I | | | | trends". In other words, the market may be going up |
| had heard stories of many folks making 50% per | | | | and you may be in profit and then some major forex |
| month ROI and of course, like any other person | | | | news comes out, essentially wiping out your profits. |
| looking to make money, I thought that this would be | | | | Worse yet, you don't have a stop/loss in place and |
| a perfect option to build cash quick. Of course, I was | | | | you really lose.... |
| aware of the risks but I didn't take into account all | | | | 6. Not checking other time frames to accurately |
| the hidden dangers of forex trading. I didn't realize | | | | predict the market - I am not about to go into my |
| that forex trading has its own set of rules and that if | | | | spill as to how much I hate intra day trading and the |
| you don't understand them, then you could easily | | | | shorter time frames. However, many beginner forex |
| suffer a margin call. | | | | traders will naturally be inclined to trade in 5, 10 or 15 |
| The 8 Hidden Dangers of Forex Trading | | | | minute time frames. Why? Well, I guess because |
| | | | profits and losses can be realized more quickly and |
| 1. Not Using a Stop/Loss Point for every trade- This | | | | there is a sense of achievement and immediate |
| sounds like it should be a no-brainer, especially if you | | | | fulfillment when you are trading within shorter time |
| are using high leverage. Just because you think that | | | | frames. However, most of these people don't take |
| the market will do something doesn't necessarily | | | | into account the secondary trends happening with |
| mean that it will. The market can swing very quickly | | | | the daily and weekly charts. If you are not analyzing |
| in a direction and if you are on the losing side of the | | | | multiple time frames, then you will be left scratching |
| stick, you can quickly watch as your account gets | | | | your head when the market moves against you. |
| wiped out. In some events, like trading the news, a | | | | Once again, it all boils down to understanding the dow |
| stop/loss point can be extremely critical as alot of | | | | theory and how it moves. If you get a clear |
| trading platforms will actually slow making it hard for | | | | understanding of trends then you won't fall into this |
| you to cancel trades. A stop/loss point will help you | | | | pitfall. |
| buffer some of the losses, should you be wrong. | | | | 7. Not understanding how Trader's Remorse works- |
| 2. Not placing the stop/loss point in the right position- | | | | You are analyzing the charts. You have your support |
| It is not enough to have a stop/loss point in place. | | | | and resistance numbers set and one of the |
| You have to know about where to put it so that if | | | | currencies you are watching suddenly breaks the |
| the market whip saws, your position isn't closed | | | | barrier of support. You immediately jump into the |
| automatically. A lot of traders accuse the powers to | | | | trade, betting that the market is going to go up. It |
| be of messing with this and actually causing whip | | | | does....for a second...only to fall back to it's original |
| saws to happen to knock out these positions. The | | | | support/resistance line. What just happened? You |
| amount of leverage really comes into play here. If | | | | have just been bitten by something called trader's |
| you can't afford to place a stop/loss in the 25+ pips | | | | remorse, a point where a breakout is tested and |
| range, then you should reduce your leverage to | | | | loses. I am not going to go into trader's remorse |
| make it happen. I can't say how often I have seen | | | | other than to tell you that it happens and accounts |
| my position get closed because my stop loss point | | | | for a ton of losses. |
| was set too low only to watch it rise past the | | | | 8. Not implementing a risk/reward plan- I am going to |
| number and into the areas I thought it would rise. | | | | say this once. Not all trades are created equal. Some |
| 3. Not readjusting the stop/loss point once profit is | | | | trades are better than others and if you can only |
| realized- It is great when you are in profit. It is not | | | | make the trades that have a high chance of |
| so great to watch as your profit starts to shift back | | | | profitability, you would be better served betting in |
| down to its original point and you wind up losing pips | | | | the casinos on the roulette wheel. You can easily |
| to the spread. Once you realize profit, readjust your | | | | develop a risk/reward plan by understanding that the |
| stop/loss points so you can make something. | | | | market traditionally will pull back or rally to certain |
| 4. Not understanding "trends"- If you have never | | | | percentages, otherwise known as Fibonacci numbers. |
| read the dow theories, you should. Basically all good | | | | Of course, there are more hidden dangers to forex |
| trader's know that you should ride trends until there | | | | trading but if you stay disciplined to these basic |
| is evidence that the trend has changed directions. | | | | tenets, you have a better chance of making profit. |
| Going against trends is a lot like going against the | | | | Forex trading is not a game for those that think they |
| current. If you are going against the trend, it is likely | | | | can profit quickly although you can. It is all about |
| that you are fighting the momentum of the direction | | | | understanding the fundamentals of trading and how |
| the market is headed. | | | | to piece them together to make your trades more |
| 5. Not closing out your position during the event of | | | | profitable. Understand certain forex fundamentals and |
| major forex news- I know a lot of traders that | | | | you will be leap years ahead of most traders. |