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Avoid Top Forex Blunders ÔÇô Keep the Money Flowing In

Tuesday, 03 November 2015
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The global forex market is the largest, most versatile and dynamic trading platform with over $4 trillion in average daily trading volumes. The appeal lies in the liquidity it offers, round-the-clock sessions and access to substantial leverage (borrowed money) with low entry and exit barriers.

Having said that, greenhorns and even seasoned market veterans take the bait to go rash and commit trivial blunders that result in enormous loss of money.

stop forex loss

Now, there are two cardinal rules in any trading. In the words of Warren Buffet,

               “Rule No.1: Never lose money
                Rule No.2: Never forget rule No.1”

Hence, the key to not losing money in the market lies in proactively understanding the blunders one could commit, and working on averting them.

Top Forex Blunders

Trade, Don’t Gamble

This is the usual and also the most notorious blunder even trading veterans commit.

Ask yourself, “Am I trading or Gambling for fast bucks?”. If you are doing the latter, then you’re on your way to disaster. Your trading strategy should have a formula that earns best returns or you will be losing all your money.

Well researched risk management plan should be the focal point for consistent moneymaking. Ensure you have a realistic medium & long term forex trading goals.

Trading impulsively without Stop Loss

A stop loss order is an order that closes out your trading position with the intent of cutting your losses when the market moves against you.

*For example, when you buy a USD at an exchange value of 10 AED, you would aim to sell it at a price higher to make a profit. Hence, it is wise to set a stop loss at 9 to reduce loss, incase the selling price goes below 10 AED. If the bid (maximum price buyers are willing to pay) price falls to 9, the trade is automatically closed, thus reducing your losses.

Hence, it is wise to trust your market instincts that are guided by well researched risk-management plan with proper stop loss orders. For the buyer, stop-loss order is a sell order and for the seller, it’s a buy order. Don’t copy or imitate another trader’s stops. Only set stops that suit your account and trading style.

Risking more than 1% of the capital

To avoid losses at the forex market, no more than 1% of capital (money available for trading) should be risked on a single trade. Successful traders adequately fund their account to transact seamlessly.

Trading Right Before or After the News

Key news announcements definitely influence the market .But the direction of the rally (price movement) is always a surprise. Taking a position immediately before or after a news announcement can seriously threaten your chances of success. It’s wise to wait for volatility to subside and for a definitive trend to develop. Be flexible and responsive to changes, understanding the trends that give way to consolidation and breakouts.

As long as you don’t commit the above blunders you won’t end up losing money in the financial market. In the words of Warren Buffet, you only have to do very few things right, as long as you don’t do so many things wrong!

*The exchange rate figures are for reference purpose only .Actual figures may vary according to the market conditions. 

Last modified on Tuesday, 03 November 2015 12:29