1) Knowledge deficiency – Most new FOREX traders don’t take the time to learn what drives currency rates (primarily fundamentals). When news or a statement is due out they must close out their positions and sit out the best trading opportunities. They are taught to only trade after the market calms down. So essentially they miss the whole move and then trade the random noise that follows a fundamental price move. Just think for a moment about technically trading the aftermath of a price move; there is no potential
2) Relying on others – Real traders play a lone hand; they make their own decisions and don’t rely on others to make their trading decisions for them; there is no halfway; either trade for yourself or have someone else trade for you.
3) Stop losses – Putting tight stop losses with retail brokers is a recipe for disaster. When you put on a trade commit to a reasonable stop loss limit that allows your trade a fair chance to develop.
4) Trading during off hours – Bank FX traders, option traders, and hedge funds have a huge advantage during off hours; they can push the currencies around when no volume is going through and the end game is new traders get fleeced trying to trade signals. There is only one signal during off hours – stay out.
5) Trading a currency, not a pair – Being right about a currency is half a trade; success or failure depends upon being right about the second currency that makes up the pair.
6) No trading plan – Everyone wants to make money from trading; that is not a trading plan; a trading plan is a blueprint for trading success; it spells out what you see your edge as being; if you don’t have an edge, you don’t have a plan, and likely you’ll wind up a statistic (part of the 95% of new traders that lose and quit).
7) Trading against the prevailing trend – There is a huge difference between buying cheaply on the way down and buying cheaply. What was a low price quickly becomes a high price when you’re trading against the trend.
8) Exiting trades poorly – If you put on a trade and it’s not working make sure you exit properly; don’t compound the damage. If you’re in a winning trade don’t talk yourself out of the position because you’re bored or want to relieve stress; stress is a natural part of trading; get use to it.
9) Trading too short-term – If you’re profit target is less than 20 points don’t do the trade; the spread you pay to enter the trade makes the odds way against you when you go for these tiny profits.
10) Picking tops and bottoms - Looking for bargains works well at the supermarket but not trading foreign exchange; try to trade in the direction the price is going and you’re results will improve.
11) Being too smart – The most successful traders I know are high school graduates. They keep it simple and don’t look beyond the obvious; their results are excellent.
12) Not trading during news time – Most of the big moves occur around news time. The volume is high and the moves are real; there is no better time to trade fundamentally or technically than when news is released; this is when the real money adjusts their positions and as a result the prices changes reflect serious currency flow (compared to quiet times when Bank traders rule the market with their customer order flow).
13) Ignore technical condition – Determining whether the market is over-extended long or over-extended short is a key determinant of near time price action. Spike moves often occur when the market is all one way.
14) Emotional trading – When you don’t pre-plan you’re trades essentially it’s a thought and not an idea; thoughts are emotions and a very poor basis for doing trades. Do people generally say intelligent things when they are upset and emotional; I don’t think so.
15) Lack of confidence – Confidence only comes from successful trading. If you lose money early in your trading career it’s very difficult to gain true confidence; the trick is don’t go off half-cocked; learn the business before you trade.
16) Lack of courage to take a loss – There is nothing macho or gutsy about riding a loss, just stupidity and cowardice. It takes guts to accept your loss and wait for tomorrow to try again. Getting married to a bad position ruins lots of traders. The thing to remember is the market does crazy things often so don’t get married to any one trade; it’s just a trade. One good trade will not make you a trading success; rather its monthly and annual performance that defines a good trader.
17) Not focusing on the trade at hand – There is no room for fantasizing in successful trading. Counting up and spending profits you haven’t made yet is mental masturbation and does you no good; the same goes for worrying about a loss that hasn’t happened yet. Focus on your position and have a reasonable stop loss in place at the time you do the trade. Then be like an astronaut – sit back and enjoy the ride; no sense worrying because you have no real control; the market will do what it wants to do.
18) Interpreting FOREX news incorrectly – Fact is the press only has a very superficial understanding of the news they are reporting and tend to focus on one element and miss the point. Learn to read the source documents and understand it for real.
19) Lucky or good – Your account balance changes don’t tell you the whole story about your trading; if you’re taking a lot of risk and making money you will eventually crash and burn. Look at the individual trade details; focus on your big loses and losing streaks. Ask yourself this; if I had a couple of consecutive losing streaks or a couple of consecutive big loses, would my account balance look. Generally, traders making money without big daily loses have the best chance of sustaining positive performance. The others are accidents waiting to happen.
20) Too many charity trades – When you make money on a well thought out trade don’t give back half on a whim; invest your profits from good trades on the next good trade.
21) Courage under fire – When a policeman breaks down the door to a drug dealer’s apartment he is scared but he does it anyway. When a fireman climbs onto the roof of a burning building he is scared but does it anyway; and gets the job done. Same with trading; it’s ok to be scared but you have to pull the trigger; no trigger – no trades – no profits – no trader.
22) Quality trading time – I suggest 3 hours a day of quality, focused trading time; that’s about all your brain allows. When your trading being 100% focused; half way doesn’t work. Don’t even think that time spent in front of the computer watching the rates has any correlation to profitability; it doesn’t. Spend less time but when your trading be 100% focused on trading.
23) Increasing your potential loss by moving your initial stop – Think of yourself as a prizefighter; you just got knocked out. Moving your stop is like getting up after being crushed with a knockout blow; it’s pointless; things will only get worse. Don’t ignore the obvious; your wrong – get out. Come back the next day and try again. A small loss will not hurt you; a catastrophic loss will.
24) Mixing apples and oranges – Have you ever done this; you see the EURUSD trading higher so you buy GBPUSD because it “hasn’t moved yet”. That’s a mistake. Most of the time the reason the GBPUSD hasn’t moved yet is because it’s already overbought or some 4:30am UK news was bearish. Don’t mix apples and oranges; if EURUSD looks strong, buy EURUSD.
25) Avoiding the hard trades – Bank FX traders have an axiom; the harder the trade is to do the better the trade. This I learned from experience; when I needed to buy EURUSD and it was hard to buy them (the price was increasing fast); that’s when it’s necessary to pay up and get the business done. When it’s easy to buy and the price doesn’t increase as you’re buying; that is when you sit back and wait for better levels. So if you’re trying to get into a trade or more importantly get out of a trade and as you’re trying to do it the price seems to be running away from you; take that as a clear sign that you need to get that trade done right away.
26) Too much detail – Too many indicators stifles trading and finds reasons not to trade. A set-up and a trigger is all you need.
27) Giving up too easy – Your first trade of the day may not be your best trade but it’s no reason to quit. I have a pre-set daily trading limit and I use it; you can’t make money by making excuses; getting trades wrong is natural and should be expected.
28) Jumping the gun – Don’t be penny wise and dollar foolish; wait for your trade signal to be clear; put on your trade and give it a decent size stop loss so that you don’t get knocked out by random noise.
29) Take a loss – Place your stop beforehand and NEVER increase your pre-determined risk; if it’s going bad it could get a lot worse.
30) Over-relying on risk reward – There is zero advantage in risk reward; if you put a 20 point stop and a 60 point profit your chances are probably 3-1 that you will lose; good traders think about risk reward in relation to their personal assessment of what they see as their probability of the trade being successful.
31) Trading for the wrong reason – Because the EURUSD is going up is not in itself a reason to buy. Buying EURUSD because it’s not moving so little risk is even worse; you’re paying the toll (spread) without even a hint that you will get a directional move. If your bored don’t trade; the reason you’re bored is there is no trade to do in the first place.
32) Trading short-term moving average crossovers – This is the money sucker of the century. It’s easy to set up on software, complete with lights, bells and whistles. Good for the seller getting thousands for the software but in terms of creating profit for you it’s a zero sum game in the short term.
33) Stochastic – Another money sucker. Personally I think this indicator is used backwards; when it first signals an overdone condition that’s when I think the big spike in the “overdone” currency pair occurs. To be overbought means strong and oversold means weak. Try buying on the first sign of overbought and selling on the first sign of oversold; you’ll be with the trend and likely have identified a move with plenty of juice left. So if %k and %d are both crossing 80; buy! (Same on sell side; sell at 20)
34) Simulated results – Watch out for “black box” systems; these are trading systems that don’t divulge how the trade signals are generated. Majority of them are absolute garbage. They show you a track record of extraordinary results but think about it; if you could build a trading system with half a dozen filters using the benefit of hindsight, couldn’t you come up with a great system. Of course going forward is an entirely different story. High-speed number crunching capabilities allows for building great hindsight trading systems; BEWARE.
35) Have a plan – Every business (FOREX trading included) requires a business plan (trading plan). Unless you have taken the time to write down a set of rules that you can and will follow, it’s likely your trading will remain unfocused and directionless. Make a plan, have rules, and follow your rules. Set goals that are realistic and you will achieve them.
36) Master of none – Focus on one currency for technical trading; each currency has a unique way of trading and unless you get intimate with it you will never truly understand its underlying idiosyncrasies. Don’t spread yourself too thin – focus – master one currency at a time.
37) Thinking long term – Don’t think long term unless you are taking long term positions. If you’re a day trader focus on what’s happening right now and what may happen for the rest of today. That is not to stay the long-term trend is not important; it is to say the long-term trend will not help you when you’re trading a significantly shorter time frame.
38) Overconfidence – Trading is not easy; statistics show 95% failure rate. If you’re doing well don’t take your success for granted; always be on the lookout for ways to improve what you’re doing. If you’re trading poorly you need to come to grips with the fact you’re not getting it done.
39) Getting pumped up – Don’t pump yourself up. Maintain an even keel; when you are in a trade you want to think exactly as you would if you didn’t have a trade on. To do this requires a relaxed disposition; this is not a football game; don’t get psyched up; relax and try to enjoy your trading – win or lose.
40) Being real – I don’t recommend demo trading beyond learning the functionality of your broker platform. Traders learn bad habits when trading with play money. I don’t think “letting it all hang out” right away is wise either. Your initial trade size and dollar risk should be about 10% of what you anticipate you will be trading once you are knowledgeable and experienced.