At the start of each trading session, you will receive an email with the author's new posts. Firstly, I hope you had a wonderful Christmas and enjoyed the festive period, getting to spend time with friends and family over this special time. Each New Year offers us an opportunity to set specific goals and get ourselves into good new habits and routines that will benefit us over the coming months.
This time around, I wanted to share with you three separate case studies of students going through common issues in their currency trading. Hopefully, by detailing their challenges and offering some action points, you too can take something away from this article to help your own FX trading in the coming year ahead.
While I know this sounds pretty bleak, it is however a harsh fact of reality. Randomly clicking buttons and entering the market on a whim is only going to guarantee one thing: I have been guilty of over-trading myself so I know exactly the dangers that come with it. It is especially difficult in the currency markets when you consider that you have to pay a spread as well every time you get into a position.
Beyond that fact however, is the important question of why people over-trade. Having worked with multiple students worldwide, my conclusion is that most traders hit the button far too many times because they have a feeling that they know what is going to happen next. This is usually a result of losing a few trades in the first place, which typically puts a person on the back foot and creates a level of desperation with need to make the money back and get into a level of profitability.
It amazes me how easy it is for people to stop trading when they win straight off the bat, yet they carry on when they are losing because they are so desperate to make those losses back. How crazy is that? I will stop trading when I win but I will carry on when I lose! The last consideration we have to take into account here is that many of us just lack the patience to wait for the right set up.
If you want to treat trading as a job you have to realize that it is a job that does not require constant activity in taking trades. Most time is spent waiting for the right set up which will offer the maximum reward and the lowest possible risk, with a high level of probability involved as well.
When markets are moving frantically, it can be difficult to sit on your hands and wait for the best time to pick your spot. Yes, patience takes time to develop but as they say, the best things in life are worth waiting for.
When I meet a trader who is taking far too many stop outs it usually comes down to one of two things: Taking small loss after small loss can add up and, while we have to prevent the large loss from happening, it is also vital to recognize that a multitude of small losses can start to add up to one large loss over a longer period of time.
Many traders I encounter use tight stop losses because they are trying to get cheap entries into the market and huge rewards. While there are rare occasions when you can get away with a minimal stop loss and make a huge reward, in real-world scenarios this is often very difficult to achieve on a consistent basis and many times, the Forex trader will find themselves getting stopped out only to then witness the price move in the direction in which they anticipated. The key here is giving yourself enough room for the trade to work, while also knowing when to get out if you are wrong.
You should also ask yourself the question of whether you are following a trade plan when you find and place your trades. If you are following a plan, you should know your specific entry price, stop loss price and target all before you even place your order. Randomly taking a trade and applying a stop loss and target is no guarantee of success because you should only enter a position at the key moment when the lowest risk and the highest probability of success is present. An inability to time the market means you will have a low success rate in your trades making it unlikely that you are ever going to achieve your short-term income or long-term wealth goals that you set out in advance.
This alone prevents a multitude of unnecessary stop losses. The last of our case studies is one which is probably the most common of all. It is a frustrating time when traders go through the syndrome of feeling like every time they place a trade the market is against them. If you have had some education however, then good for you! This is the very first step in making sure that you are on the right track and will, no doubt, give you the best chance of success in the long term. It should be recognised though that getting an education is step one.
The second step is being consistent enough in your actions by sticking to one proven strategy time and time again. It can be tempting to keep reworking your system to maximise results, especially if you go through the occasional losing period. By doing this level of ground work you will discover the best course of action that suits your style and psychology when trading.
Many traders just fail to stick to one thing long enough to give themselves time to really figure out what works because, after all, consistency is the true key to successful market speculation. I hope you found the topics in this article helpful in overcoming some of the hurdles that you may be facing in your own trading experience. Hopefully, if you have been enjoying success up until this point, then you can use these guidelines to know what not to do in the future. This newsletter is written for educational purposes only.
By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein.
Past performance does not guarantee future results. Close alert Thanks for following this author! Close alert You've unfollowed this author. You won't receive any more email notifications from this author. Too Many Stop Outs When I meet a trader who is taking far too many stop outs it usually comes down to one of two things: Nothing I Do Ever Works!
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