Aug 6, 2008

4 Common Sins in Forex Trading | ForexGen

1) Traders become long term Investorshow often have you heard of people saying, that they are still straddling on to their losing position in Forex trading, while hoping that the market will make a U-turn in their direction? This happened to most Forex amateurs who may find it too painful to cut small losses and get out of their trades. They are either holding on a position too large or having a large ego to admit that they are wrong. Eventually they will grow tired of watching the prices go too much against them, that they just leave their position hanging there.Many amateur traders deny their loses, just like an alcoholics deny their drinking problems. There is a stark of parallel between an alcoholic and a trader whose account is being demolished by losses. They nurse the fantasy of being able to control their losses; however, nothing will ever change with their self-denial nature.2) Cheap become Cheaperthis is a very common mistake, and those who commit it do so by comparing the current price with the 52-week high of the currency. Many people using this gauge assume that a fallen share price represents a good buy. But the fact that the currency price happened to be at a highest price of the decade. That's why it pays to analyze why the currency has fallen.Deteriorating fundamentals and increased interest rates are all possible reasons for the weakening of currency - but they are also provide good reasons to suspect that the currency might not increase anytime soon. It is important always to have a critical eye since a weakening currency might be a false buy signal, avoid buying currency that simply look like a bargain. In many instances, there is a strong fundamental reason for a price decline. Do your homework and analyze the currency's outlook before you invest in it.3) Picking High and Lowmany started trading Forex without knowing the nature of the market. Unlike the stock market, Forex is very trendy financial instrument and the trend may continue for over a period of few years.Most traders like to be the first one to pick either the high or the low of the market, and they may describe to you the thrill they get from being right are equivalent to flying a plane. However in the Forex market, it favors more on continuation rather than reversal. To be truly profitable in the Forex market, extra cautious need to be taken for initiating a reversal trade.4) Presuming or predictingmany amateur traders gambled on hunches and use it to make their trading decisions. Or you may hear your relatives or friends talking about a currency that they heard will get a bull rush, because the economy of that particular country is good. Even if these things are true, they do not necessarily mean that that currency is "the next big thing" and you should run to the nearest phone to call your broker.Other unfounded tips come from trading professionals on internet who often tout a specific pair of currency as though it's a must-buy but really is nothing more than the flavor of the day. These currency tips often don't pan out and go straight down after you buy them. Remember, buying on media tips is often founded on nothing more than a speculative gamble.