November 15, 2009

Online Foreign Exchange Trading: Don't Make These 3 Big Mistakes

Just about everybody who starts online foreign exchange trading is hoping to make big money. There are perhaps a few people who do it just for fun, but if they are at all successful they will soon start to think about turning that success into a money maker that could eventually change their lives.

However, a lot of forex traders see their big dreams come to nothing.

Mistake #1: Increasing The Risk

When you start out you will receive a lot of good advice about keeping your risk down around 2% to 5% depending on the size of your funds. Most people feel it's OK to take a bigger percentage risk with smaller funds because they don't care so much about losing the money. So you might be happy to risk 5% of a $1,000 starting balance (that's $50) but you probably wouldn't start out risking 5% of a $100,000 balance if you have it (that's $5,000).

But after a while, the situation somehow becomes reversed and people who started out with a good small risk often find themselves increasing it. This can be either because their system has been consistently profitable and they think they cannot lose, or because they have had a few losses and they think they must be due for a winning run. Neither of these assumptions are true. Disaster can strike, often at the times that we are least prepared … i.e. when we just increased the risk.

Your percentage risk should decrease as your funds increase, not the other way around.

Mistake #2: Trying To Do Everything

Some inexperienced forex traders hop from system to system, abandoning every system whenever a new one comes along. Others try to cover all the bases, running three or four systems at the same time and trading on every currency pair that their broker offers. Both of these tactics are big mistakes.

The most successful systems are simple. Don't try to employ every forex trading strategy that you can find online and don't be drawn into thinking that if you combine the advice of all of the experts you will end up with the perfect system.

Trading systems do not mix well. Start with one. If it doesn't give you enough trading signals so that you don't have anything to do most days, you might want to add another, but be careful. Remember that if there is a sudden major natural disaster or terrorist attack, all your open trades could go west in a few seconds.

Mistake #3: Too Much Or Too Little Testing

You probably know that you need to test any system in a demo account before going live with it. However well the system is explained, you may be doing something slightly differently that will give you different results from the expected. It's important to test enough that you have confidence in your system.

But at the same time, don't test for too long. You need to know that the system works and then not be scared to switch it over to a real money account … without changing anything. Go back to the demo account any time that you think of an improvement. This will give you the best chance of making big profits with your online foreign exchange trading real money account.

Online Foreign Exchange Trading: Don't Make These 3 Big Mistakes

Forex Trading Headlines

Categories