You might have heard of stories of people making alot of money trading Forex. The reasons why people are attracted to the Forex market may be many, but it is usually about the money you can make. Because this US$5 trillion market is open 24 hours every weekday, there is never a bad time to log on and start trading.
However, Forex is far from easy. Before you find out the hard way, here are some common mistakes that could cost Forex traders their hard-earned money.
Mistake 1: Averaging Down
No matter what kind of investing you are doing, you will eventually encounter averaging down. Example; Purchasing a currency pair on Forex at one price, and go on to buy more when the price goes down. You think that it gives you a lower average price on your position. There are a few issues here though.
First of all, you cannot average down without holding onto a losing position. Averaging down may work, but usually with stocks. With Forex is nearly certain to fail because of the highly volatile market. So if you try to average down, it will not be possible without crippling your supply of capital when it could be used on better opportunities.
Mistake 2: Positioning Prior to News
If you know a big news announcement is coming out. Such as the Federal Reserve chairman about to speak on the future of quantitative easing, you may think it is a good idea to take a position before the announcement happens.
Obviously you have to be able to predict what the announcement will be and its effect on the market. Even if you know enough to take an educated guess the first time, it may not work the second time.
Forex is an international market where anyone from any country can trade. You cannot possibly read the minds of millions of traders. Instead, your best bet is to be on the exchange when the announcement comes out and then follow the market.
Mistake 3: Relying Too Much on Signals
Every good Forex trader has their own collection of signals they rely on to help them make the right trades. To some degree, signals are necessary to reach your potential. However, if you rely on them too much, your own education will suffer. So when you start out, take the time to learn how the market works first and then move on to adding signals to your strategy.
There is a lot of money to be made on Forex if you can avoid the above mistakes. Even though they may be tempting at times, stay focused with a sound strategy.
To really profit from Forex, you need a proven system and experienced mentors to guide you. To find out more about such a mentorship program, click here to check out an upcoming seminar we’re organizing!
source credit: investopedia : forex day trading mistakes