Forex 101: Three Hazards To Avoid

Posted Saturday, July 13, 2019 by
Shain Vernier • 2 min read

If you have traded the forex for any length of time, then you know that making money consistently can be a challenge. Seemingly a million pitfalls stand in the way of profitability ― from slippage to choppy markets, there’s no shortage of dangers to avoid when actively trading.

Of course, many perils are easily eliminated by implementing a detailed trading plan. In addition, one can copy ideas from a social trading website or follow signals from a professional service such as FX Leaders. However, no matter how you end up trading, the hazards listed below are best avoided at all costs.

Forex Hazard #1: FOMO

The fear of missing out (FOMO) impacts every trader at one time or another. It is the placing of “extra” trades to make sure that a move or opportunity is not missed. FOMO can be deadly to a forex account, promoting overtrading and reckless risk management.

In reality, beating FOMO is easier said than done. A large part of what makes a trader a trader is rugged opportunism and a risk-tolerant nature. In order to avoid FOMO, it is imperative that a concrete plan is in place governing market entry. Without one, executed trades will grow and profits will very likely shrink.

Forex Hazard #2: Analysis Paralysis

One of the most common mistakes made by us active traders is that we attempt to do to much. Sitting in front of eight computer monitors in an attempt to trade 20 markets at once is counterproductive. In most cases, the myriad of charts, indicators, and products in front of us greatly inhibit our ability to act decisively.

Unlike FOMO, solving analysis paralysis is fairly straightforward ― eliminate the noise! Focus your efforts on few markets and analytics, not the entirety of the financial world. Remember, simple is almost always best!

Forex Hazard #3: Avoid The Chase

By far, the most difficult aspect of forex trading is taking a loss. Losing money has a significant psychological impact, not to mention financial repercussions. While making money is the ultimate goal in active trading, understanding how to correctly take a loss is a big part of that equation.

If there is one thing in forex trading to never do ― and I mean never ― is to double or triple up on leverage to “get back” lost capital. This is a surefire way to the poorhouse; it is a far better idea to stick to the trading plan and ride out tough periods with discipline. If not, gambler’s ruin is all but assured and much closer than you think.

Bottom Line

It is important to remember that becoming a successful forex trader doesn’t happen overnight. It takes time, discipline, and dedication. If you are having trouble becoming consistently profitable, then maybe you are falling victim to FOMO, analysis paralysis, or chasing losses. Should this be the case, take a break from the markets and reevaluate your trading plan, goals and objectives. Though a little due diligence, these hazards can be identified, avoided, and conquered.

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