Forex Education - The 4 Major Mistakes That Cause 90% of Traders to Lose
by Monica Hendrix
If you want to trade Forex and win the odds are against you - 95% of traders lose and only 5% succeed. If you want to win at forex trading (and the rewards are huge) then don't make these 4 trading mistakes.
If you make any of these mistakes you will never achieve long term profitability in forex trading.
1. Predicting Market Movement
This is the one major error almost all new forex traders make and it's a critical one.
If you try and predict then you are simply hoping or guessing and the market will destroy your equity.
Hoping or guessing is not a way to make money in any business - forex trading included!
For example, traders spot a support level and think it will hold so they buy - what they should do is:
Wait for proof that the level will hold by looking for a change in price momentum that shows prices are moving back up - this is the proof.
Check out and start using momentum indicators in your trading.
2. Using Logic That Does Not Work
Trader's very often use methods or systems which can never work.
Here are some examples:
Day trading
Is popular but you will NEVER win.
All short term volatility is random - therefore you can't get the odds in your favour and lose.
The Appliance of Science
Many traders think markets move with scientific accuracy and use cycles or Fibonacci numbers - they don't work and never will, yet traders still use them.
Obviously they can't work:
If markets moved to a scientific formula, we could all work out the price in advance and there would be no market.
Two Many Inputs
Many traders try to be too clever and have systems with huge amounts of indicators.
After all, 12 indicators must be better than 2 or 3 - Wrong!
Too many indicators, simply means the system simply breaks in real time trading and are not as robust as simple systems.
The above are just a few examples and there are many more - look them up in our other articles.
3. Poor Money Management
Most novice traders are paranoid about losing - they place stops so close their guaranteed to get stopped out.
On the other hand, when they have a profit they get so excited, they bank it early by moving their stop too quickly!
If you want to make money you have to take meaningful risks to make big rewards.
To do this you must keep your stops outside of normal volatility - if you want to hang onto the big trends, that make the big profits.
4. Lack of Confidence and Discipline
The reason most traders lack this is because they try and buy success.
They think someone can give them success for a few hundred dollars and buy an e-book or system from a vendor.
When the system starts to lose, they have no confidence in it and throw in the towel.
An important vital part of your forex education is:
Only you can give yourself success.
Most systems sold on the net are junk if they were that good the vendor would trade them himself and not bother you for small amounts of money!
You need to build your own system and know how and why it makes profits, have confidence in it and this will give you the discipline to follow it through inevitable losses in the short term and hold on for long term profitability.
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How Psychology Can Influence Your Investment Judgment
By Keith Lee Yong Ming
Studies have shown that human have shown patterns of irrationality, inconsistency and incompetence when arriving at decisions and choices when they are faced with uncertainty.
This field is better known as behavioral finance. This field explains how emotions influence investors and the markets. This explains why prices can go much lower or higher than the actual value when the companies faced with temporary setbacks or business opportunities. This also explains why there are market bubbles and crashes.
This is when value investing comes into picture. Warren Buffett believes in finding out the intrinsic value of a stock and buys large amount of it when the price falls below the actual value of the stock.
When a stock falls, most investors would not cut loses and withdraw his/her stocks. Instead, to avoid the pain and regret of making a bad investment, they might hold on to the stock until the stocks fall even lower until it worths nothing. An investor tends to follow the market crowd. When he sees that a lot of investors are dumping their stock in the market, they will start to fear and ignore their own judgment and start following the crowd. This could cause the stock to fall rock bottom. However, it is the value investors who profit from this who knows whether this is a permanent or temporary setback to the company stocks and whether prices will increase again.
Warren Buffett once said this “Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ…Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”
Some common mental mistakes made by others 1. Believing in the majority's judgment than their own 2. Tendency to follow the crowd, believing that majority of the people cant be wrong
Some killer tips on how you can use behavioral finance to your advantage
1. Prepare a checklist and set up a system on the criteria that a company should meet before you decide to buy or sell.(e.g. How is the management? Any changes in the management? Is it a good business ?
2. Do not buy a company stock which you do not know about
3. Seek out your opinion with someone (not too many). Make sure that you are able to support your judgement on why you should buy or sell a particular stock. If you are not able to answer, then maybe this is not a good stock to invest in.
4. Keep an open mind about stock prices
5. Learn from your mistakes and do not be obsess. Always have an entry and exit strategy. When your stock shows signs that you should exit, exit immediately and cut your losses. Learn from your mistakes and move on.
Stock Market Trader Check out more articles at http://bewarrenbuffett.com Article Source: http://EzineArticles.com/?expert=Keith_Lee_Yong_Ming |
