Wednesday, 29 February 2012

4 Trading Mistakes and How to Avoid Them

Enormous amount of traders always make the same mistakes over and over again. In fact it is not that difficult to avoid those mistakes. It's enough to remember a few rules. It doesn't matter if you are a day trader, swing trader or position trader. Everyone makes mistakes. It's just a human nature. Almost everyone who starts to trade makes the same mistakes. New traders make errors because of insufficient experience. The foundation for them is the thinking pattern that is common to most people.
If we ignore the charming illusions about ourselves every single one of us makes mistakes, especially when we need to make decisions in Forex market. The only entity that doesn't make mistakes is market itself. I will not go into the root cause of these mistakes I just give you some ideas how to avoid them and make your trading profitable.
Mistake #1 Buying at the top.
Many traders no matter in what timeframe they trade tend to enter the market when it's actually time to get out of it. Even though there is still probability to make a profit, chances are the price will drop. Trader may be enjoying some profit for very short period of time. But very soon he finds out that market goes against him.
Why do they do that? People tend to forget any rational thinking when they see the price is dynamically growing. They think that if they don't buy when it rising so fast they will miss out on profit. Such traders rush into the market to get losses. These traders actually make the price volatile at the top. How to avoid this mistake? There are three simple rules.
1. Never buy if your trading system does not give you a signal.
2. Buy only if price breaks through the resistance level.
3. Always remember that when you are buying there is always someone who is selling the currency pair.
Mistake #2 Selling at the bottom.
This mistake is similar to the previous one. It mirrors buying at the top mistake. Trader sells when he sees the tumbling price just to find out that market reverses against him. The cure for this mistake is similar to the previous one.
1. Never sell if your system does not give a signal and all support levels are broken and there is no reason for the price further to go down.
2. Sell only if you see that major support level has been broken.
3. Always remember that for your short transaction there is always a long transaction for that currency pair.
Mistake #3 Selling the currency pair in uptrend.
Very often you can see how a trader sells the pair in a correction movement of the intensive uptrend. They think that a pair lost its momentum upwards and go short with it. But usually the currency pair that was in a strong upward trend after some correction or consolidation period proceeds to the upward movement forcing such traders to lose money. You still can trade corrections but it is much more risky than if you trade along the trend. Follow these 3 rules to avoid this mistake.
1. Do not take a short position when a pair was in a strong uptrend.
Most likely the correction will be very small.
2. Use a breakout strategy to enter the market.
3. The longer the ranging market the higher the probability of price to continue upward movement breaking the resistance of the range.
Mistake #4 Buying in downtrend.
This mistake is similar to a previous on. It mirrors the selling in uptrend. Usually strong downtrend getts into consolidation phase. Trader decides that trend is over and buys a currency pair just to find out that trend went further down. He can enjoy some profit during a correction phase. However correction is very short in strong downtrend. Use these 3 methods to avoid this mistake.
1. Don't take a long position in a strong downtrend. Price correction will be very small.
2. Use breakout strategy to find when price brakes out of a consolidation phase.
3. The longer the consolidation phase the more likely strong downwards movement of price will continue after the breakout.
Albert Schmidt is a part-time currency trader. After quite a long time of struggle he learned to make consistent profit trading in Forex. Review a trading strategy he successfully uses in his trading Forex.

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