With the right know-how, the forex market can be a highly lucrative trading platform. However, with such high volatility, the market can often be turbulent – meaning bad habits and techniques can quickly damage your potential for profitability.
With that in mind, today we’re running through the key takeaways from Greg Secker’s two-part YouTube video on how not to trade forex, ensuring you’re equipped with all the necessary knowledge on how to trade forex the right way, to the overall benefit of your profit potential.
Using too many indicators
When used correctly, indicators can be one of the best forex trading tips available to market participants. However, a common pitfall of traders of all experience is using too many – whether this involves combining trend, oscillating or range-based indicators, relying on too many of these can mean you’re gambling capital by diverting from a measured, pre-established trading plan.
As a rule of thumb, the more indicators you’re utilising, the less likely it is that they’ll directly correlate with each other. This means that you’ll be (quite literally) receiving mixed signals, contradicting the very point of indicators as a result. Stick to three at the very max, enabling greater clarity and focus on the relevant, chosen area of the market to the benefit of your trading plan and execution.
Trading off of emotion
One of the most important lessons in forex trading for beginners is to never trade emotively. You can identify whether you’re guilty of this by analysing whether there’s any logical rationale behind the trades you’re placing – if there’s not, you’re most likely emotive trading. Whether it’s opening a position in the hopes of recouping a loss or placing an illogical trade inspired by a misguided self-belief during a winning streak, the fundamental takeaway is simple – never divert from your strategy!
Now, of course, emotion is always going to be involved in forex trading, so it’s important you can distinguish natural feelings from emotive reaction. For example, nerves or excitement regarding an open position is a completely natural feeling to have when trading on a fast-paced, highly volatile market, so as long as these emotions aren’t impacting your trading rationale, there’s no need to worry – after all, we’re all human!
Switching trading plans
As we’ve just highlighted, your trading plan is the bread and butter of any safe and secure forex trading strategy. However, this doesn’t mean it guarantees instantaneous success. On the contrary, once you’ve established a plan based on the strategies and pairings you’re comfortably familiar with, it’s still going to take time to properly embed this into your live market approach.
Assuming your plan is well-informed, it typically takes about a month for you to properly come to terms with your trading plan in a live market environment. So, avoid abandoning your plan the moment you drop a couple of positions. By constantly switching between plans without giving them the sufficient time to flourish, you’ll never reach your true trading potential, never experiencing any consistency in your profits as a result.
Trading solely off current affairs
A common forex trading tip is to always have one eye on the news, as changes in current affairs such as geopolitical tensions can (and often do) directly affect currency valuations. So, while trading around economical news is of course encouraged, altering your plans on an adhoc basis in response to uncalendered news and events isn’t advised. This is because reactive trading such as this causes massive, sudden volatility as – we hate to break it to you – you’re not the first trader to have the same thought after watching the 6 o’clock news! This means that markets can become very unstable at a moment’s notice, dramatically increasing the likelihood of substantial changes in capital loss or turnover.
The best way to trade off news and events is to consult an economic calendar, which details major events such as general elections or budget announcements that are sure to affect pairing valuations. This way, you can plan ahead and incorporate event-based trading into your wider strategy, ensuring it remains logical, analytic and well-informed as a result.
In case we haven’t been clear so far, allow us to reiterate – logic, planning and analysis is vital to any form of forex success. Therefore, gambling capital by abandoning risk management strategies in favour of impulsive gut instincts is one of the biggest cardinal sins any forex trader can commit.
The forex gambler can be identified as someone who tends to go long, meaning they’ll buy and sell a position multiple times within the same window. Usually, this is a result of trying to quickly recoup losses from a different losing trade, and as we’ve already established above, this mentality should always be avoided.
While there are big profits to be made on the forex market, this naturally means there are also big losses to be made. Gambling can, and often will, see you experiencing the latter, meaning that it’s key you instead practise safe risk management strategies and risk reduction habits. If you ever find your approach diverting from these tried and tested risk minimisation methods, stop – as it’s likely you’re just gambling your capital away.
You’re searching for a ‘holy grail’
Like it or not, forex trading is a long game, and you’re not going to walk straight into the market and find that magic profitable strategy from day one. From price range movements to volatility, a lot can change on the market day-to-day, meaning a live environment is going to take a lot to get used to. Consequently, it’s important to first spend time practising on a demo account to obtain a certain level of market familiarity, moving to a live account only when you feel ready. Once in a live environment, apply a grey box system into your trading, using real-time trading strategies with human intervention, as opposed to relying solely on black box auto-corrects.
Remember, when it comes to forex trading, there isn’t a secret holy grail – the only way you can optimise your approach for profitability is to put in the time and effort required to master the market!
You ignore your stops and limits
Another common mistake in people’s understanding of how to trade forex is moving stop-losses – the logic here is that traders can allow themselves a little extra wiggle room for inevitable market movements. However, making even the slightest change to your stop-losses can have major implications on your risk exposure, as your level of risk is calculated by your entry price, position size and stop-loss.
As a result, ensure you place a stop-loss up front before executing a trade, being sure not to move it whilst the trade is live (no matter what the market or your gut might be telling you).
So there you have it, 7 techniques you should never implement when trading the forex market. To learn forex the right way, including tips, tricks and advice on market best practice, why not visit our blog or check out Greg Seckers’ Youtube channel here?