In the Forex market knowing just what you should do and knowing how to get it done is important. It's also vital to understand how to do it correctly. However, that's only part of the picture; it's important, although not enough. Knowing just what exactly to avoid and what mistakes to avoid is also important. For that reason you need to find out which are the typical errors made by others and then be careful to avoid them.
I bet you know that 95% of the people involved in the Forex market lose money (learn here)
). What you may not know is that, when they loss their money, the market moved the way they predicted. Displayed here below are the three most usual mistakes that traders make with the currency market...
First and foremost, let the trade breathe...
You will find this important since on short time periods the market moves randomly; if your stop-loss order does not allow the trade to breathe you will be kicked out of the market before it moves in your direction. It may be frustrating to see the price move as planned and don't be able to profit from it.
It is best to avoid constantly been stopped out of the market. For avoiding this issue you should consider the average daily range when you place your stop-loss orders. This will help your trades to breathe.
2nd, make sure you don't place your stop-loss orders in the same place as everyone else...
This may be a crucial point since you can't be part of the elite traders who profit consistently if you trade like everyone else. If you place your stop-loss orders in the same place as every trader, how are you going to profit? Remember trading currencies is a zero-zum game, that means that every dollar you win is money someone else loss.
Some brokers hunt stop orders; it's easy since they know where most of them are placed. What you need to do then is to use the average range to place your stop orders, that will let your trade to breathe, and be careful to avoid common points of support and resistance (like pivot points) to place them.
Finally, just because you think you know what the market will do, don't increase your exposure...
This problem occurs when traders think they can be certain about the direction the market is headed. You can avoid this mistake by being disciplined. You need to be loyal to your money management rules no matter what. Many traders wipeout their accounts, even when they are right most of the time, because they don't follow diligently their position sizing rules.