Top Forex Pitfalls
There are plenty of pitfalls in the forex markets, especially for beginners. Not a whole lot of people truly understand the risks associated with this form of trading. Like any form of trading, it is challenging and requires you be on top of trend formations in order to profit from a good forex trade. Here’s a few things new forex traders should watch out for:
1. Beware of forex trading robots. I’m not saying these little guys don’t work. I’m just saying that the vast majority of them don’t, and the ones that do are the result of careful consideration and oversight on behalf of the people utilizing them. So basically, if you know how to manage your robot’s settings and program it for appropriate markets, you have the potential to produce passive income.
Forex robots are a lot like putting a plane into autopilot. It’s a great idea…up until one of the engines catches on fire. At that point, it’s going to take an intelligent pilot to take the plane down safely, just as it will take an intelligent trader to manage and overcome volatile market conditions that may arise while your robot is trading. Just remember, forex robots can slaughter your account just the same as a human being can.
“The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency.”
-Bill Gates
2. Beware of leverage and margin calls. Forex trading is one of the most leveraged forms of trading in the financial markets. While this sure is great for people who are making the good trades and profiting from smart trend following, it’s a horrible nightmare for those who end up in losing trades, especially without appropriate risk management.
For those who don’t understand forex leverage, it’s simple. Most sites feature a 100:1 leverage system that allows you to control $100 worth of profit with $1, or $10,000 with $100, and so on. This means that any trade that would normally have granted you a 1 percent profit margin now grants you a 100 percent profit margin. Or a 100 percent loss.
So just be careful with how leveraged your account is. Set stop losses to never risk more than 2-5 percent of your account in any trade and be sure the money you are risking is in fact risk capital, in other words, money you can afford to lose, not your life savings or your children’s college fund.
3. Beware of overtrading. Beginner forex traders will see trades everywhere. Oh look, the line on the screen is going up! Time to trade! No! Stop it! Overtrading is one of the easiest ways to burn out and lose all your cash as a forex trader. There are tons of false breakouts in the financial markets that can screw you over if you’re not careful.
Look at trading as setting a trap for a price to behave a certain way. Leave a strict system for yourself and have the discipline to follow it by only trading when price meets your parameters. If you trade every time you see even the smallest hint of a trend, you will lose time and time again, and will develop the assumption that forex is a rigged game. Don’t do that to yourself.
Too many people take this stuff for granted, and I guess that their money making success suffers in the end. There’s a major tendency to wait for the elusive Holy Grail that the majority of people wind up doing more harm than good. An occasional look in the mirror helps all traders to keep our footing in a ruthless market.
The GBPUSD has squeezed higher to test the 38.2% retracement and th 100 bar MA on the 5 minute chart. A move above targets the 1.6182 level where the 200 day MA is found. This is key resistance. On the downside, the move above the 1.6144 level now makes that level the support level to get through for the sellers up here. We will be watching that level on the downside.
Hi just thought i would tell you something.. This is twice now i’ve landed on your blog in the last 2 weeks searching for totally unrelated things. Spooky or what?
I tried some of those forex robots and they didn’t work for me at all. I was wondering if you knew of a good forex system that I could use because I’ve been trying to make money from home trading forex for a while, but haven’t found anything that works consistently enough for me to transfer it to a live account. Any ideas? Thanks.
-Julia
The one I recommend to most forex traders is called Forex Rebellion. It works great because it combines automated trading signals with human discretion and intellect for a system that is easy and straightforward.
Just thought i would comment and say neat theme, did you code it yourself? Looks great. But what happened to your trade of the week section? Have you still been trading?
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Thank you Eric for the tip on Forex Rebellion. Does anyone have any further comment on Bots that could be helpful to a newbe?