The foreign exchange market (forex) has a low barrier to entry, which makes it one of the world’s most accessible day trading markets.
This easy-entry is not a promise of a quick profit, however. Before you take the plunge, make sure you’re familiar with 5 mistakes that you should avoid. Read the previous article here.
6. Anticipate the News
Many pairs (two stocks including one long, one short, or both correlated) rise or fall sharply in the wake of scheduled economic news releases.
Often the price will move in both directions, sharply and quickly before picking a sustained direction. It means that you are just as likely to be in a big losing trade within seconds of the news release as you are to be in a winning trade.
Another problem is when the spread between the bid and ask price is often much bigger than usual. Instead of anticipating the direction that news will take the market, have a strategy will get you into a trade after the news release.
Without all the unknown risks, you can profit from the volatility. One of the approaches is the non-farm payrolls forex strategy.
7. Choose the Wrong Broker
Depositing money with a forex broker is the biggest trade you will make. Unless you have poor management in financial or an outright trading scam, you could lose all your money.
Before you choose the broker, make sure you consider these five-step processes.
First, you should go through when deciding on which broker to use. Second, you should consider what you want to accomplish. Thirdly, consider what a broker offers. Fourth, use reliable sources for broker referrals. Lastly, test the broker using small trades at first and don’t accept offers of bonuses with their services.
8. Take Multiple Trades that are Correlated
Diversification is a strategy that depends on your knowledge, experience, and what you are trading.
If you see a similar trade setup in multiple forex pairs, there is a good chance those pairs are correlated. That is why you are seeing the same setup in each one.
When pairs are correlated, they move together. It means you will probably win or lose on all those trades. Otherwise, you have multiplied your loss by the number of trades you made.
9. Trade Based on Fundamental or Economic Data
Fundamentals have absolutely nothing to do with short-term price movements—using fundamental analysis causes you to focus on the wrong concepts and form biases.
Any long-term biases can only cause you to deviate from your trading plan. Your trading plan and the strategies it contains are your guide in the market and prevent you from taking unnecessary risks, or gambling.
10. Trading Without a Plan
If you don’t have a trading plan, you are taking unnecessary gambles. Create a trading plan and test it for profitability in a demo account or simulator before trying it with real money.
Your plan should outline your risk management rules and should outline exactly how you will enter and exit trades for both winning and losing trades.
