With around 5 trillion US dollars worth of currencies traded daily, the Forex market is the largest financial market in the world. It is an extremely exciting business to be in as it provides a simple way for both the traders and investors to build up profits rapidly. Nevertheless, for those new to the Forex market, it is crucial to know exactly what you are getting yourself into. You should not deal in the Forex market if you are clueless as to what the Forex market entails.
Despite having said this, we still countless novice traders repeating the same mistakes over and over again. Some of these common errors that the make include:
• Not embracing the correct outlook toward trading in the Forex market.
• Not having the right attitude
• Unable to differentiate the significances of the different currencies traded.
• Having poor management of their trading as well as the implementation of their trading strategy.
Many novices fail to appreciate the importance of having the correct outlook toward trading in the Forex market. This is actually about making the proper preparations before beginning to trade in the Forex market. First of all, a novice trader must coordinate his personal goals and mindset so that he can connect with the market as well as with the tools used in Forex trading.
For example, the Forex trader needs to think about the time frame with which he is most at ease when it comes to trading. Using short time frame charts like a 5-minute chart will imply that you should be at ease with the market position without risk of overnight exposure. On the other hand, if you prefer to trade with weekly charts, this would imply that you are acceptable to the risk of overnight exposure. It would also mean that you can deal with the fact you will not be trading for several days.
The Right Attitude
The right attitude would entail having the following traits in one’s mindset like:
• Having realistic expectations
Able to discern the significance between the various currencies traded
Not all currency pairs are created equal. Each currency pair is being traded for different fundamental reasons. Simultaneously, different market participants go for different currency pairs. The way a bank will trade differs significantly from the way a Hedge fund conducts its business. A speculator will also have a different trading philosophy from that of retail Forex traders. Therefore, in order to capitalize on any opportunities, you need to be able to appreciate these different motivations of the market participants.
Proper management and strategy implementation
Although no Forex trading strategy is 100% foolproof, this does not mean you can forgo having one while trading in Forex. It still provides a roadmap for you to measure your progress in making your trading decisions. Even though you will incur some losses along the way, at the very least your can see what is the ratio of profits to losses when you implement a particular trading strategy.
With the countless number of trading techniques that are available today, it is difficult to say which is better and which is no good. What is important for you as a trader is that you must feel comfortable with the trading strategy that you adopted. As the Oracle of Omaha Warren Buffet, use to say there are only two rules in investment. The foremost rule is “Never lose money” while the second rule is “Always remember the first rule”.