The foreign exchange market is the largest financial trading market on the globe. However, the market’s size will not guarantee profits for its traders. In fact, only 10% of all foreign exchange traders will earn a steady profit. The majority of traders are only breaking even and many are incurring detrimental losses. It is imperative that you understand the market and why traders are experiencing losses so you can avoid these errors and psychological traps.
1. Trading without a plan
One of the essential tools in a trader’s toolbox is a forex trading plan. This trading plan is vital as it covers all features of your trading system. It looks at the strategy you will be using, the risk management techniques you have in place and your money management plan. Of course, an effective trader will constantly update the trading plan in order to adapt to their trading requirements. It is recommended you review your trading plan each week or month to see if it is working correctly. If not then you should revise the weak sections so you can continue trading advantageously.
2. Having unrealistic expectations
One mistake all new traders make is having unrealistic expectations of the foreign exchange Melbourne market. Many believe the market is a ‘get rich quick’ scheme and plan to make millions of dollars in a short amount of time. Unfortunately, this is a false belief and profits require a great deal of hard work and commitment. It is important to set realistic trading goals when looking at how you will be trading and what you want to earn.
3. Not adapting to the foreign exchange Melbourne market
The foreign exchange Melbourne market is highly volatile and in constant flux. To be an effective trader you must be able to adapt to this environment. Before entering the market you must understand the different conditions such as ranging and trending. You must also learn how to alter your trading strategy to effectively trade in the different conditions. The majority of experienced traders choose to use multiple strategies as a means of overcoming this barrier. However, it is recommended that a new trader master one strategy before using multiple strategies.
4. Learning through trial and error
It is common for one to learn via ‘trial and error’; however this is not the most effective means of learning trading behaviour. Evidence has shown that those traders using the trial and error method experience more detrimental and sometimes account depleting losses. Instead, one should learn about the forex market and forex trading using training courses. These courses are available online and can be completed in 6-8 weeks via email. It is recommended that you register for a demo account once your training has been completed. This will allow you the opportunity to gain practical experience by trading with virtual currency on the forex live market. You will have the chance to test and develop your trading strategy in a secure environment.