The Top 5 Biggest FOREX Trading Mistakes

(you can't afford to make)

OVERVIEW

Ask 7 different FOREX traders or futures traders the major mistakes new traders make, and you’ll get a different answer each time. Why?

This is because the nature of FOREX and futures trading is almost always an individual pursuit. At the beginning and end of each trading day, success or failure is totally up to you.

Outside of trading clubs and friendships with other traders, trading forums, etc., where you can share success and commiserate on trades gone south….in its’ purest sense, FOREX and futures trading is a very solitary journey.

Remember – knowledge is only potential power. What you’ll learn below will empower you only if you take it to heart and use it in your trading efforts.

Lastly, regardless of how obvious it is, this mistake is still made by new traders. So it still needs to be said anyway:

ONLY trade with money that is completely ‘disposable’, that is not needed for daily living expenses (food/clothing/mortgage/college education/ongoing monthly bills, etc), and that you can afford to lose and not have it negatively impact your life or those of your family.

Trading of any type, and particularly futures, is highly speculative , and most people lose money.

(Note - the terms “FOREX/FOREX Trading”, “Futures Trading” and “Trading” will be interchanged throughout this content, as these 5 aspects apply regardless of what you trade, even stock).

TRADING SIN #1) – THE WRONG TRADING PSYCHOLOGY APPROACH

Many traders – even more experienced ones – fall into the ‘business as usual’ trap, especially those brand new to this exciting and alluring monetary pursuit.

What does “business as usual” mean?

For this discussion it means that the same positive, personal characteristics that allow people to succeed & achieve in life and business...(things like ambition, drive, persistence, whatever it takes attitude, etc)...can have a very negative impact on your FOREX trading efforts and cause you to fail at trading.

In trading, these otherwise achievement-enhancing behaviors result in traders chasing markets, overpaying to get into a market, forcing trades that one shouldn’t, ignoring sound systems and trade strategies….basically putting on bad trades that end up as money losers.

No matter what you do in FOREX or any other sort of trading, you individually can’t make the markets up or down. You can’t force a profitable trade to occur no matter how hard you work at it. And as much as we would love it, we can’t force winning trades to happen.

The markets are what they are - they move how they move - and any trade will be what it will be…..some winners, and some losers.

Accept, embrace and learn to live with that reality, and you’ll be on the way to improving your trading success odds.

This is what the most successful FOREX and Futures Traders do. An important key is that they approach the markets and trading with a very unattached, dispassionate perspective with a "just the facts, Ma’am” approach.

If a potential trade setup matches up with their strategy, analyses, etc., they put on the trade.

The market either moves in the direction they thought it would or it doesn’t. The trade works out or not. And their pre-trade analysis is validated one way or the other.

Top traders don’t chase markets. They don’t force trades.

They don’t do ‘whatever it takes’ in the traditional sense. They do operate within very defined boundaries of their trading strategy, account balance and risk/loss tolerance levels. Successful traders trade with discipline and focus.

They may not like what the market does, but they accept it and then they move on to the next trade.

Ignore this important trading psychology distinction on how the futures trading world works, and you’ll set yourself up for a lot of heartache, frustration and trading losses.

TRADING SIN # 2 - TRADING WITH EMOTION

Unfortunately, it’s much easier said than achieved. Most traders struggle with this aspect of trading, which is why most of them fail miserably. But you don’t have to be one of them.

In the FOREX and Futures Trading markets, Greed and Fear are the big drivers. They’re two sides of the same coin, both deeply & highly charged emotions.

That’s one of the reasons you’re interested in trading FOREX in the first place – to make money, right? Greed is mighty powerful stuff!

It’s the daily battle between the market Bulls (betting on a rising market) and Bears (betting on a falling market)...

...and the prevailing overall market sentiment between these 2 trading groups that creates market swings, movements and potential for profit(and loss) every day.

When trading any instrument (FOREX, futures, etc.) it’s very emotional to put real money at risk of loss, in the hope of making more.

Practice all you want, but when the rubber meets the road and you put on a trade, who wants to lose $100, $500, $1000 or more if the trade doesn't work out?…..and then have to explain it to your spouse or partner, if you have one.

To give yourself any real chance trading success - you can’t get swept up in emotions – the greed of making money, and the corresponding fear of losing it all.

But how do you do that? It goes back to the psychology we talked about before.

If you want to trade like the pros do it, you need to think like them.

You need to train your mind, become emotionally disciplined & focused, and to accept whatever trading result you get at face value and nothing more.

If you experience a trade result that didn’t work out the way you expected or hoped, take a mental step back.

For more impact, get up and take real step or two back from your computer trading screen – suspend your emotions, and say to yourself “hmmmm…that’s interesting”.

Just be in that moment, look at the facts, numbers, chart. Then record your trade, what happened, etc. for future reference. Study. Learn. Then – move on to the next trade.

It's OK and perfectly natural to be upset when faced with a money losing trade. But file those emotions away quickly and get back to operating in a detached emotional state.

Trust your trading system and approach. Trust your trade entry and exit strategy – and don’t wander from it. Don’t fall into the trap of letting Greed and Fear take over and rule your trading decisions. You won’t completely eliminate your emotions as that’s impossible.

But you can, and must learn to control your emotions when the dreaded two-headed monster of trading – Greed/Fear – raises its ugly head in your trading day.

For your own mental and emotional health and the health of your bank account!

TRADING SIN #3) – TRADING AN UNDERFUNDED TRADING ACCOUNT

Why is this not a good idea?

Contrary to what the FOREX brokers, trading brokerage houses, and sellers of all sorts of trading systems might have you believe...(ex: ”it only takes $1000 to open an account and get started FOREX trading”)...

...to give yourself the best chance of FOREX trading success, you need to have a much larger FOREX trading account to work with.

Why?

Because, most new traders don’t have enough cash to exercise proper trade money management and sound risk management, often putting far too much at risk on single trades.

Bottom line? Losing trades empty their account before they know what hit them.

Game over. Little to no more money left in their account, and they’re out of the FOREX trading game all too soon.

You don't want to be this guy or gal!

Especially starting out, the cold reality is very, very likely that you'll have more losing trades than winners….and maybe see a string of several losing trades in a row - it happens.

Many new traders put 5-10% and often far more of their entire trading account equity at risk on a single trade relative to their total available account balance.

Even worse, they put on multiple trades or trade multiple contracts at the same time, so that a far greater percentage of their account balance is at risk of loss.

No wonder there is such a high trader failure rate!

Professional, highly successful traders will tell you not to risk more than2-3% of your account balance on any one trade.

More conservative trading pros may put at risk only 1-2% of their balance at risk on a single trade.

You'll never or very rarely see them risk more than 10% of their account balance on all open trades.

So what does this mean for you and your trading ambitions? For sound risk and trading money management it means:

- A $30,000 trading account risking 3% total of account balance on all trades = 1 trade you can put on... meaning you have only $900 to buy 1 FOREX contract trade.

- A $10,000 trading account risking 3% total of account balance on all trades = 1 trade you can put on... meaning you have only $300 to buy 1 FOREX contract trade.

- A $5000 trading account risking 3% total of account balance on all trades = 1 trade you can put on... meaning you have only $150 to buy 1 FOREX contract trade.

As the cost to buy/trade just one standard FOREX contract can run several hundred to $1,500....that math doesn't work out too well trading a $1000-$3000 account, does it?

More importantly, it means that if you don’t have the disposable 'bling' to open a sizeable trading account, you shouldn’t be trading at all!. If for no other reason than starting out, the odds are heavily against you losing most, if not all of your account.

Now, all hope to trade the FOREX markets isn't lost if you don’t have a large enough account (to trade standard contracts).

You can still trade, exercise sound money/risk management and trade strategy, and give yourself a better chance to succeed by trading mini or even micro contracts, instead of full-sized or standard contracts.

In FOREX trading, a mini-contract is 1/10th the size of a standard contract. And a micro-contract is 1/100th the size of a standard contract.

The profits potential (measured in PIPS) is also correspondingly lower when trading a mini or micro account.

But your risk/loss potential is dramatically reduced, while you give yourself a chance to learn how to trade.

As a result, you give yourself a much better chance at trading ‘staying power’ to stay in the game, learn, improve your skills, etc.

So what's the takeaway here?

1) Don't trade standard FOREX contracts with too small a trading account, or you'll basically end up throwing your hard earned cash away.

(2) If you do have a small disposable cash stake to play with, start off small.

(3) Exercise smart trade sizing, never risking more than 1-2% of your available trading account balance on a single trade.

And never risk more than 5% (10% tops) on all outstanding trades. Capital preservation is really important!

TRADING SIN #4) - NO TRADING STYLE / NOT UNDERSTANDING YOU RISK TOLERANCE

Failure do this can lead to quick & sometimes heavy losses, not to mention high stress and anxiety levels leading to potential health issues.

Let’s talk about Risk Tolerance first.

We all have a tolerance for risk. Some of us like the flat-out, full bore excitement of the chase. These are aggressive, high risk takers.

At the other extreme are those people who hate any type of risk at all. And in between is where most of us live, some preferring smaller to mid-sized risk, some like a bit more.

When it comes to FOREX and Futures trading, it is critical to understand which type of risk taker you are and how much trading risk and potential trading loss you can stand, deal with and accept...

...as that second part will determine your preferred trading style (short, mid-range or longer term).

Regardless of the amount of money you are thinking of putting into futures trading, ask yourself the following:

“Am I fully prepared to risk losing my entire trading stake, and should that happen, am I OK with that?”

If the answer is a quick and absolute ”No”, you would be best served by finding some other less risky pursuit and avenue to invest in vs. speculative trading and forget about FOREX/Futures trading altogether. It may not be what you want to hear, but you’ll sleep better.

If the answer a hearty “Yes” or, a “Yes, but maybe a smaller amount, or maybe only a small amount of that, etc.”…..consider starting off trading mini or micro contracts.

Start small, and if having success, you can slowly scale up. (If you start out with full contracts and lose right away, there’s no way to recover those bigger lost trading dollars).

Now let’s talk about identifying your ideal/preferred Trading Style .

Short-Term Trading - Ofte, people with the highest risk tolerance level and need for 'action' / immediate trading results gravitate to short-term trading styles. Day Trading is the most obvious of these.

These traders may place a few to several trades per day. This trading personality tends to be an aggressive, immediate results-oriented risk taker. Trading of this nature is very high intensity and high stress.

Day Trading also requires a much larger sized account with which to open an account. It lends itself to immediate profits or losses each day, and trades are not held over to the next trading day.

Mid-Range (Position) Trading – Generally, this type of trading can be a short as holding a trade position over several days, but more often is holding a trade position over several weeks to several months.

Due to the longer time trading timeframe for trades to develop, it can be less stressful than Day Trading.

As it doesn’t involve the intensity and very tight focus of Day Trading, and doesn’t require the much longer trading view of long-term traders, position trading may appeal to many traders.

Long-Term Trading – This trading style is characterized by the phrase ‘buy and hold’, with traders holding positions for several months to several years. Warren Buffett is a classic example of this longer-term approach to trading.

For long-term traders, the ability to weather large account drawdowns is key, if the market goes against your position for some time.

So, depending on the number of contracts traded, etc., a larger account balance and different type of risk tolerance (time) may be required to endure watching a trade go underwater for some time before eventually make the move you’re anticipating it will.

Your ideal trading style will in part be driven by your level of risk/loss tolerance. It’s very important to know and determine up front before you start your FOREX trading, so that when you do put on and enter a trade, you’re doing so from the most comfortable place for you to be, as a trader, and being true to yourself.

This will allow you to trade less stressfully, in a more focused fashion, and help with keeping your emotions in check.

Knowing and committing to your ideal trading style means you also won’t be trying different trading styles, chasing markets, etc., which only leads to bad and losing trades almost all the time.

TRADING SIN #5) – TRADING WITH LACK OF / NOT ENOUGH KNOWLEDGE

Realize that in choosing to enter the FOREX Trading arena, you are stepping into the largest trading market in the world.

The FOREX market dwarfs almost all other markets combined - trillions of dollars in foreign exchange currencies are traded each day.

FOREX is also one of the most competitive trading markets on the planet. As such it attracts the most brilliant trading and mathematical genius minds. It is the ultimate power game – trading money.

The FOREX trading area is filled with many incredibly intelligent, deep-pocketed and phenomenally well equipped and resourced traders, companies and institutions in the world.

What do they have that you don’t have?

They have a huge edge – knowledge/data, and lots of it.

Plus, they have the systems and technology to leverage and use their extensive knowledge on demand to extract maximum success from their futures trading efforts.

The big guns – the biggest traders, major banks, hedge funds, financial institutions – gather and crunch massive numbers, trade/market scenarios, ‘what if’ cases, and more.

As you may know, there are two main types of trading analysis – Technical Analysis (time and price analysis based on futures charts), and Fundamental Analysis (based on numerous market factors – things like weather, PE ratios, product inventories, economic indices, global demand, etc.).

Fundamental Analysis is challenging, just because of many moving parts of data, and getting it all in a timely enough fashion to use in making your trading decisions.

Technical Analysis boosters are prone to rely solely on the charts, saying all the “fundamental” data is already reflected in the charts (price) anyway.

But “Average Joe/Jane” trading speculator doesn’t have all those resources. What to do?

Look at taking a hybrid approach to using knowledge and analysis.

So if you’re a “TA” trade analysis type, be willing to invest some time and learn more about the specific “fundamentals” affecting the FOREX pair or other Futures commodity you may be following.

See if it adds some new value into your trading decisions, maybe as another, distinct trade entry confirmation point.

The same advice goes for primarily ‘Fundamental’ analysis traders.

Don’t follow the easy path that everyone else does. Try and give yourself every advantage possible. Remember, the markets don’t care if you win or lose. They’ll take your money either way.

Be willing to suspend your current beliefs, challenge your assumptions, and learn something new. Read a good trading book or several. Spend time in top FOREX forums.

Invest time to educate yourself so you can compete more successfully against those with greater resources and deeper pockets.

Any new additional information you have is one more tool you have to more successfully compete in the FOREX & Futures Trading markets.

Hopefully you've found the information in this eBook valuable and insightful. We'll be bringing you more solid FOREX trading perspectives in our ongoing newsletter/tips emails that you had opted in for and requested.

In the meantime, happy and successful trading!

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