When engaging in foreign exchange trading, you run the risk of losing money. This is natural because not all trades will go your way. However, there are a few things you do, and a lot of things you can explicitly NOT do to lessen the risk of bad moves in your investment. Below, find what to avoid when trading forex.
Don’t Trade Without a Plan
As with any other investment, forex trading requires one to have a plan if they’re to achieve the most efficient results. A forex trading plan prepares you for different trading situations, if you stick to it. Whatever situation comes your way, the plan should always be followed.
A plan helps you to focus on the goals you set for yourself. You can better track your progress as a trader when you have milestones to achieve with which you base your development.
Sticking to your plan prevents you from making decisions based on impulse, and prepares you to make immediate actions, no matter which direction your trade is going.Having a forex trading plan you can stick to also helps you avoid getting emotional – a big no-no in trading.
Don’t Let Emotions Cloud Logical Judgment
One of the biggest mistakes a trader can make is involving their emotions involved when making trades.
A loss in a trade can encourage a trader to trade more so he or she can win back what he or she lost. The trader may want to exact revenge when they get frustrated or disappointed with the trade’s result. The trader may overtrade, and this may bring a chain of frustration and bad decisions. Similarly, a chain of wins may also affect a trader negatively, leading to overconfidence when making trades. The trader may overtrade with the idea that he or she can no longer lose.
Patience is also lost when one is too emotionally involved. Patience is one of the most important virtues to remember when trading. One must be persistent in waiting and looking for the best price action in order to attain the best results.
One must be more logical than emotional when trading. This ensures the best decisions in the trade therefore generating better trades and lesser risk of loss.
One must realize that foreign exchange trading is not gambling. It may be similar due to the fact that both have risks and returns, but trading requires more logical decisions. This is why forex trading requires a plan; when a situation does not go according to your plan, you shouldn’t risk it by making a decision based on a whim.
Avoiding these mistakes in forex trading may seem simple, but in the midst of trading, it can be quite difficult. Following these guidelines may lessen one’s risk of losses and reduce bad decisions.
Technical Points have been taken from http://www.xe.com/currencytrading/basics.phpand http://www.mtrading.my/- a Malaysian Forex Broker.
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