Before I get into today’s post, I hope you had a chance to watch the day trading video I wrote about yesterday. If you haven’t I recommend doing so now, before they take it down. It’s great for any trader.
Tap Here to watch the day trading video (it will open in a new window so you can continue reading this post).
Today I want to talk about 2 major mistakes which contribute a lot to the dismal statistics which state that over 90% of traders lose money on Forex.
In my mind, the main culprits are 2:
- Overtrading
- Trading with big leverages
Overtrading happens because some traders feel that they need to always be in the market. After all, if you’re not in the market, you’re not making money, right? Well, you’re not losing any either.
Why does overtrading happens?
It is usually triggered by one of two scenarios:
1. You’re on a winning streak and you feel that you can’t lose, as if some angel is watching over your trades. You begin to trade quickly, without really checking out the market conditions and with no sensible trading method.
2. You’re on a losing streak and feel that you need to turn it around as quickly as possible.
In both cases, you’re letting your emotions get the better of you and determine for you what trades you put in. In those time, your brain is practically out of order and logic is hidden deep under waves of turbulent emotions.
The key to long term success is to be able to identify the right kind of trading opportunities and to act on them. You need to take only high probability trades. Yes, you may encounter some losses, but over time, you will profit. It’s the rules of probability playing their powerful game in your favor.
It’s okay to not trade when the market isn’t showing any opportunity. It’s not okay to place risky trades only because you “feel” like it.
Over-leveraging is when you trade with too high leverages in the hopes of making a quick killing. Take my advice: high leverage is a fool man’s trap and can easily blow your account in single trade. Brokers offer high leverage only because it entices you to open and account with them and begin trading carelessly.
Even experienced traders rarely use high leverages because they know that no matter how well you execute your trades, the market has a mind of its own and will sometime turn against you.
Sure, with low leverages you need more winning trades to show a big profit, but that’s not the point. The point is that in order to be successful you think of risk first and profit second.
Only after you reduce risk (and it can’t be eliminated totally) do you begin focusing on profit.
My recommendation for Forex beginners is to hone their skills with very low leverages and never go higher than 10:1. Remember, no matter how sure you are of what’s going to happen, the market has it’s own ideas.
In conclusion
You need to trade only when you see an opportunity and it’s okay to stay out of the market if there aren’t any opportunities available. They will come.
You need to trade with low leverages to make sure your money is safe. Only then, think about profit.
Good trading.
