Australian Exchange Reminder: Seven Fatal Mistakes of Forex Traders

Fatal mistake 1: Failing to stop losses quickly

Successful Forex trading, like a successful life, is determined by how well we manage our losses, not how well we avoid them. If you really want to be a savvy Forex trader, learn how to lose professionally by minimizing your losses. This is the key.

How to get rid of mistakes without a quick stop loss

1. Never start a foreign exchange trade before deciding where you should protect your ship when things go wrong. Like, never start a foreign exchange trade without setting a stop loss.

2. Always stick to your pre-set stop loss. Needless to say in this industry, but only a few aspiring forex traders have the self-discipline to do this. Why is this so hard to do? Because getting out at a stop loss is clearly admitting that you are wrong. This act will not bring a warm feeling of pride, nor will it build one's confidence. But true forex trading masters have learned to overcome these difficulties. They have become experts at stopping losses at dizzying speed. They do this because they have developed an intolerable feeling for positions that don't work for them, and will kill them as soon as trouble sets in. (Dismiss unconstrained positions)

3. If you have trouble sticking to your stop loss, get into the habit of selling half of your position first. This approach satisfies two opposing impulses, the urge to get rid of the falling position and the urge to give the falling position a chance to rise again. By dividing the problem in half, forex traders usually gain a greater degree of sanity and mental focus. Psychologically, forex traders find their situation less difficult, and therefore feel better. The question of what to do with the remaining half still exists, but since half of the problem no longer exists, it becomes easier to come up with a workable solution.

Fatal Mistake 2: Counting Money

Constant monitoring of how a foreign exchange trade goes up and down is a devastating activity that can rob a foreign exchange trader of profits for years. This process, often called "counting money," not only deepens fear, but also heightens the uncertainty of every moment, preventing one from focusing on the right technique. The right technique ultimately determines how much we can profit.

Focusing too much on the idea of "where are you" rather than doing what you should do can lead to ill-advised, ill-founded knee-jerk and overly quick reactions. Instead, Forex traders must be confident that their technique is correct every step of the way, and that profits will come naturally if the technique is followed correctly.

"Counting money" is often the fault of foreign exchange traders who are not yet willing to make regular profits. Not only does it rob foreign exchange traders of considerable gains, but it also fuels long-term uncertainty, fear of loss, and an imbalance of emotions that can lead to destructive behavior.

How to Overcome the Problem of "Counting Money"

1. For each foreign exchange trade, set two protective sell prices to sell your entire position. Every foreign exchange trade you make should have one entry point and two exit points, namely stop loss and target. Stop loss is for protection, and the goal is to profit.

2. Sell only when your position reaches a stop loss or target, whichever comes first. By adhering to this principle, Forex traders place the fate of every Forex trade on their Forex trading strategy, rather than on their own greed or fear.

3. When the desire to sell before any sell-out point becomes overwhelming, sell only half and keep the remaining half until the sell-out point that the strategy allows. This way, you satisfy your desire to sell while preserving the integrity of your Forex trading strategy.

Fatal Error 3: Converting Time Frames

There is no precise point at which one cycle begins and another ends. Instead, it coincides at a meeting point. This narrowing is intended to point out a very common mistake that many market participants make: buy in one time frame and sell in another. The issue of "switching" time frames is simply a reason to ignore stop losses, our only protection against disaster.

By switching from one time frame to another, Forex traders postpone the ultimate feeling of being a loser. Cover their failure with a flimsy plan, and paralyze themselves into a deadly state of denial by cultivating false hopes. Forex traders who make such mistakes are in fact unfit for Forex trading, and the market will not tolerate them pretending for too long. Ultimately, the mistake of switching time frames will erode the resolve of Forex traders, depriving them of their ability to think and act freely, relegating them forever to tragic victims.

How to Eliminate Errors in Converting Time Frames

This fatal mistake of switching time frames cannot be allowed to exist and must be completely eliminated, because every time such a mistake is made, it will lower the level of the Forex trader, and once the habit is formed, it is difficult to break.

If you buy within a time frame, be sure to set up your sell-out points within the same time frame.

2. When you are long (empty), you should not adjust your stop loss (exit point 1) downward (up). This is a major signal that you are about to make the mistake of converting timeframes. Used correctly, adjusting your stop loss upward to protect your gains can. But adjusting your stop loss downward makes no sense and will make you more reluctant to do what you were meant to do. Once you take this action, you will do it again and again until the stop loses its ability to protect you from disaster. Both methods will easily prevent you from making the fatal mistake of converting timeframes.

Fatal mistake 4: What you need to know more about

It is natural for us to need certainty before we act. But the truth of the matter is that the opportunity to get rich is always given to those who don't need to know more to act wisely. Markets come first, and big profits always come before the facts come. Those who want to know more before placing their bets will always be one step behind, and will always be on the wrong side of the market. Those who are not bound by the need to know more can move freely. When they truly understand the wisdom of uncertainty, they become chart makers, not chart readers. So the point is that you as a Forex trader cannot afford to want to know more, because by the time you know all the facts, the opportunity has run out.

"Need to know more" is a fatal mistake, one that keeps you from acting when it's time to act, and encourages you to act precisely when you shouldn't. We play with odds, not fortune telling, and forex traders who don't trade Forex until all the facts are clear will never succeed.

How to Eliminate the "Need to Know Too Much" Mistake

1. Don't buy on the heels of good news

2. Use charts to form your buying and selling decisions

3. If you find yourself hesitating because you want to know more, stop and ask yourself: "Is what I'm looking for necessary for Forex trading, or am I just looking for something more comfortable?" This question will put an end to the hectic behavior.

Fatal Mistake 5: Being too self-righteous

When the market is going very well for you and everything is going well for your forex trading, you cannot escape the hand of negligent destruction. When a string of profits bulges your wallet, you must do everything in your power to protect your hard-earned gains and maintain a clear mind that can help you generate them. Unfortunately, every trader will eventually realize that continuous profits usually reduce one's alertness, because complacency has taken advantage of it.

Many newcomers do not understand this because they do not realize that some of the characteristics of the market environment they are familiar with will change after a considerable period of profit. In fact, in many cases, the market environment and the opportunities it presents have changed. It is no longer the market that the Forex trader started trading on the first day. It has different characteristics and a different set of opportunities. However, it is precisely when the market is about to change that the Forex trader who has not received an acceptance report begins to become complacent, raise his chips and gamble. Without realizing that the environment that brought him a string of victories no longer exists.

How to get rid of the "too self-righteous" mistake.

Learn to take a step back after every successive gain.

Reduce your foreign exchange trading chips by half.

Reduce the frequency of foreign exchange transactions.

Fatal Mistake 6: Profiting the Wrong Way

We all know that money can be obtained with integrity and honesty, and on the other hand, we also know that it can be obtained in dishonest, shameful ways. The end result may be the same, but the means of obtaining money may be very different. It's like asking a heart surgeon and a drug dealer, both earning a lot of money, if they can be equally respected. Of course not. The same is true in the foreign exchange trading world. Many newcomers to foreign exchange trading don't realize that it is possible to profit in the market the wrong way. Think of those who didn't stick to a protective stop on a position and who might end up making money on that foreign exchange trade by doing so, unaware that they committed a crime against themselves and that punishment would follow. These people got the wrong taste of success, and sooner or later the market will recoup these undeserved profits. What do you think they will do next time they are in a foreign exchange trade that has triggered a protective stop loss? Of course, ignore the stop loss again.

Making money the wrong way reinforces bad habits and irresponsible behavior. Once Forex traders get a taste of success from the wrong way, they almost always repeat the mistake until the wrong way hits them and gets back the money or even more from the incorrect way.

Forex trading gurus are not interested in having good luck in the market. They do not pursue, hope for, or even enjoy the gains that come to them despite their mistakes and missteps. The truly profitable Forex trader ideally has no gifts in the market.

The right actions and the right approach won't always generate profits for the honest Forex trader, but one thing is for sure, repeated wrong actions can eventually lead to the demise of a lazy Forex trader. Make sure you profit the right way.

How to Eliminate the Wrong Way to Profit

1. After every profitable forex trade, review every aspect of the forex trade: buying, initial stop-loss setting, waiting, money management, selling, etc., to identify mistakes and rule violations. A key issue is the feeling of the victor that goes with these not-really-profitable forex trades. Every time a forex trader allows themselves to feel like a victor in a forex trade when in fact it is not really a victory, they send a message that what is done is right and good. This will reinforce wrong behavior and encourage one to repeat those mistakes. Needless to say, mistakes will eventually catch the forex trader.

Realize that two evil habits -- hope and holding -- are two criminals who profit in the wrong way.

Fatal Mistake 7: Rationalizing It

Let's see if you can hit where the forex trader went wrong in the following scenario. An excited forex trader found a great forex trading opportunity in a day forex trading chart. Everything looked right, and all the market indicators came alive on a particularly positive day of forex trading after an afternoon of consolidation. Then, the entry point was reached. The forex trader executed the operation and closed. After a short period of closing, it suddenly started to turn down, spit out short-term profits, and is now consolidating at the entry point. "What happened?" the forex trader thought. "This is very funny!" The afternoon rally has now completely evaporated, and the market is clearly weak and retaliatory. Now there is only one point left for his stop loss. The Forex trader started researching for clues as to why the Perfect Entry variety started to fall. After checking all the news (there was no news), the Forex trader checked the daily chart. "Yes, the daily chart looks good. It's really good." He commented, "I'm going to move the stop loss down to the lowest point of the day. Right, it's impossible to fall below that." After 10 minutes, the new stop was pierced as the Perfect Entry variety took his money down to the South Pole. Confused, the Forex trader flattened his position and couldn't believe how much he had lost. What did this Forex trader do wrong? Is it the Forex trader who is ignoring the weakness of the developing market? Not quite so. Forex traders make three fatal mistakes:

1. Conversion timeframe. Selecting and buying is based on a full intraday basis, from an intraday entry point and a tight intraday stop, to a daily chart and a daily adjusted stop completely changes the initial foreign exchange trading, which is the initial risk/return ratio tilted in a direction that is not conducive to foreign exchange traders.

2. Planned foreign exchange trading, but did not execute the foreign exchange trading plan. Sticking to the initial plan, regardless of the time frame, is absolutely essential. Failure to execute a foreign exchange trading plan puts you in the market's favor and erodes the necessary confidence to trade effectively.

3. Rationalization. Rationalizing changes in timeframes and plans is a form of denial, denial of what is happening. Honesty - true honesty - no matter how ugly the truth may be - will put you above most market participants who cannot summon strength from within and would rather stay comfortable blaming their losses on something or someone other than them.

Planning your every forex trade is essential if you wish to approach the market with wisdom. Most failed forex traders drive by feeling, without even a shred of knowledge about how to plan their forex trades. However, planning your forex trades but not following through on them is a far more serious sin. Those who know how to do it, but fail to do so, are the least deserving of this knowledge, and the market usually takes care to give them the reward they deserve: loss. Rationalization is the culprit that lurks behind this and many other fatal mistakes. Because most people are overly optimistic by nature, they have a hard time ending events that have caused them loss and pain. When the time for action comes, it can be said that many people cannot muster enough determination and courage to jump. Instead, they began a process of rationalization, a process of convincing themselves not to do the right thing that would eventually drive forex traders out of the game altogether.