“Forex” or Foreign Exchange, can be a popular hub for people, and businesses, to score big by just predicting the right trends.
The problem though is that it’s often difficult to do that.
When you are trading in the Forex market, you need to know a few basics in the beginning after which you can develop the knowledge further with experience.
All currencies are traded in the form of pairs because the exchange must take place between two foreign currencies. Different symbols are used to represent different currencies for ease of communication.
The pairs come with a market price which refers to the amount of the second currency that will be necessary in order to buy one unit of the first currency. This value fluctuates all the time which means that you have to be on your guard always.
The Top 5 Habits You Need to be Wary Of
Here are five habits that might be doing more harm than good when it comes to making profits in the forex market.
a) Over trading:
A common mistake that most rookie traders make – the idea of more trade being equivalent to more money is baseless as no research has ever supported the idea. ‘Over traders’ tend to believe this myth and that leads to their downfall.
The urge to overtrade can arise from your addiction to the trading activity itself and the adrenaline rush that comes with it. Moreover, the hope and belief that the next trade will be the most profitable one yet can force us to over trade at times.
When does over trading occur?
Most traders do not realise when they are overtrading themselves.
- A series of wins can convince traders to trade more because they feel that luck is on their side and they should capitalise on it.
- Suffering a string of losses can lead to frustration, and overtrading seems to be a good option for overcoming them fast.
- If a trader does not have a strong forex strategy to adhere to, he or she might feel the need to trade more and see what comes out of it.
- Some traders tend to get addicted to the art of trading.
- They feel that their position on the market is the ultimate validation and so they enjoy it.
When traders get excess leverage, they tend to trade more forgetting the fact that leveraging can also lead to a faster loss of money and resources.
If discipline and work ethics are absent from a trader’s business, then he or she might get bored and trade in excess just to spice up the experience.
How do you overcome it?
- If you want to prevent overtrading from ruining your practice, then you can opt for the following solutions.
- When you suffer a heavy loss, wait and revise your strategies before going into trading again. Some rest can do wonders.
- One way you can stop overtrading is by limiting the number of trades and stocks you can play in a day or according to your positions.
Having profit and loss limits can help you take a necessary break. Once you hit the target, sit back and relax. Do not go overboard when it comes to trading setups and strategies. A small number of setups will give you more clarity and higher probability trades.
Once in a while, take a day off.
b) Selling Too Soon:
As traders, one of the most common disappointments that we face is not having sold a particular stock at the high. If the stock is going higher on the charts, most of us fix a point at which we then sell the stocks.
This way, we make a profit before the value drops again. However, the disappointment of watching the stock rising even after we have sold ours off can be crushing for old and new traders alike.
- All of us want to make a good profit that is a testament to our trading abilities.
- So when a rapid sell-off cuts off our profit, and we are left with a mere percentage of what we could have got, we tend to make mistakes.
- Selling a stock because of anticipation and not a logical deduction from the market trends can cause losses.
If you want to maximise your profitability in the long term, then you need to devise a method which will prevent you from selling your stocks way too soon. Deviating from your set of trading rules can get you a better deal once in a while, but the net profitability will most likely suffer if you also lose in proportion.
How do you overcome it?
Forex trading is all about understanding probabilities.
Make sure that you examine and evaluate some past trades so that you get an idea of what your net profitability could have been had you followed your selling rules.
- Prepare a comparison chart based on what you actually got without maintaining discipline.
- Once you understand that going by the rules is actually more profitable in the long run, you will not feel any compulsive urges.
- If you trade on a brokerage and trading platform, then you must have noticed the profit and loss indicator which comes with it.
- Turn it off so that all your decisions are rational and scientific, instead of being driven by emotions. The decision-making process should be as unbiased as possible.
Make sure that you sell your stocks at floors and not ceilings. The latter will end up limiting the upside movement by fixing a price target, but the former will set a price floor and restrict the downward movement.
c) Trading Low Probability Opportunities
The stock market is not the most pleasant of places, and you need to put in some hard work. There are times when you will find the market to be on your side and hence make huge profits, but at other times you will be left without much to do. All traders need to battle boredom once in a while, and that is not as easy as it sounds.
At times, you will find that the market is only seeing action during closing hours which can convince you to mar trades that end up in failure most of the time. In fact, most trades that are conducted to combat the feeling of being missing in action end up in losses. Not only did you take up a trade that you should not have, but also you ended up losing your hard-earned money.
This self-sabotaging cycle can not only lead to zero profit, but also to spiral losses. Whenever you see that a trade opportunity does not meet your requirements, stay away. Taking these low probability trading opportunities during a dry period and in weak market conditions, will decrease your chances of success.
How do you overcome it?
Being picky about the kind of trades you take up during these trades will save you a lot of money. Moreover, you will learn to bring your compulsive urge to trade under control.
Letting the stock market control you instead of the other way around is actually harmful.
If you are patient, you will soon find a trade that comes with acceptable terms. Utilise the slow period to finish off pending work.
d) Hesitation:
This might not seem like a bad habit but think about the cumulative losses you have suffered over the years. Suppose you find a stock with all the signals that you want and then wait for the correct point to enter.
However, you end up second guessing your intuition and the opportunity, and not entering. There are also times when you place a bid at a price that will most likely disappoint you. The market trends push the stock higher, and you are at a disadvantage.
If you decide to enter the trade a while after the first entry signal, then you might find yourself with a losing trade because the market did not perform according to your expectations.
Hesitation is especially common after a trader has already suffered a string of losses in the recent past.
How do you overcome it?
Be confident, and remember your wins rather than the losses.
e) Converting Small Losses To Big Ones:
Since Forex trading is all about estimating probabilities, you must understand that you will not always be correct. Suppose you have faced a small loss, it is your job to ensure that it does not turn into a portfolio debilitating loss instead.
Making profit by limiting losses might sound boring, but this will help you be successful in the long run. The market is not going anywhere, and you will need capital to trade the next day as well.
How do you overcome it?
Fixing a stop loss point can help you minimize your losses.
As a Forex trader, your main goal is to be making profit continually and devising new strategies that will help you achieve it. Since you have no higher authority to dictate what you can or cannot do, going overboard is very easy.
The freedom that comes with Forex trading can lead you to develop these costly habits that will stand in the way of you profiting off the trades, so be careful.
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