Mistakes in Forex Trading & How to Avoid them
A challenging aspect of being a trader, especially those trading e-forex, is finding a right perspective. Achieving the right perspective in markets with regular hours is hard enough, but with forex, where prices are moving 24 hours a day, seven days a week, it is exceptionally mind-blowing.
When swamped with constantly changing market information, it's hard to separate yourself from the action and avoid personal reactions to the market. The market doesn't give a damn about your moods.
Traders have heard it in dozens of ways: the only thing you can control is when you buy or sell. In response to that, it's easier to know how not to trade than how to trade. Following this line of reasoning, here are additional tips on avoiding common pitfalls when trading forex.
1) Don't read the news -- analyze the news. Certain news is often information released by government agencies to forward policies or certain points of view. Some news are used as a tool to influence the investment psychology of the crowd. Such media manipulation is not inherently a negative. Governments and traders try to do that all the time. A forex trader should realize that it is important to read the news to assess the message behind it.
2) Don't trade during surges. A price surge is a sign of surprise or panic. These kinds of events are where professional traders duck, dodge, and see what happens. The retail trader also should let the market digest such shocks.
Trading during an announcement or right before, or amid some turmoil, reduces the odds of predicting the probable direction. During a surge, some technical indicators would more than likely get distorted. What a trader should do is to wait for a confirmation of new prices and remember those that would possibly revert to ranges before the surge, unless of course nothing significant has happened.
3) Simplicity works best. The aspiration to achieve greater gains in forex trading can push us to keep piling up indicators in a never-ending quest for the impossible dream. But too many indicators are almost next to a waste of time. Most indicators don't carry weight; they are just information that repeated earlier information. However, indications should be used as your clues to determine trend direction, support, resistance, and selling and buying pressure. One device that can be of great help to simplify these factors is a point-and-figure chart. This chart is actually one of the earliest methods of technical analysis. Now, with recent computer technology and software, they've become user-friendly for traders than before. Point-and-figure analysis can be found on several stand-alone programs. But most online platforms have yet to offer these charts.
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