Using Forex charts is like being a ships captain at sea: Your charts can help you navigate successfully to port or you can hit the rocks and drown - the choice is yours. It’s the same with forex charts 95% of users drown – Let’s look at common errors that novice traders make and how to avoid them.
1. Predicting Price
No one can predict price movement and if you do - you are simply hoping levels will hold. Do this and you will be wiped out quickly the market wont reward you for hoping or guessing. If you want to win, act on the reality and that means - trading with price momentum AFTER a test of the level you are looking at. Trade with momentum on your side and you are trading a fact and your odds of success are increased dramatically. If you don’t use momentum indicators in your forex technical analysis learn what they are quickly.
2. Indicators Chosen and Misuse Of Them
A common error is to use lagging indicators to enter trades such as moving averages – This really leads on from the above: A Always use momentum indicators to enter trades and only use lagging indicators to determine levels of support and resistance. Many indicators traders use are useless good examples are: Fibonacci levels and cycles - they again involve prediction and simply help wipe out equity.
3. Trading Invalid Data
Day traders are the worst offenders here. They are picking a short time frame where volatility is random they can’t calculate the odds - so they lose.
4. Systems that are to complicated
Some people devise very clever systems and lose. Fact is - in forex trading you get your reward for being right – NOT Being clever. Simple systems are best - as they are more robust and have fewer elements to break.
5. Not understanding volatility
Do you know what standard deviation of price is? If you don’t learn it backwards as this will help you determine everything from stop levels to targets for your trades and help you stay in winning trades longer and get better money management.
6. Your edge
Ask yourself this question: What is your trading edge which will see you win when 95% of traders lose? If you don’t know what it is – then find out or do more work on your forex trading strategy! If you don’t know what your edge is kiss goodbye to your equity.
7. Following a method
Many traders have perfectly good methods but simply don’t have the discipline to follow them – if you dont have discipline you have no method in the first place. If you want to enjoy currency trading success don’t make the mistakes above or you will lose.
Finally, there are a lot of vendors on the net promising you untold riches from their currency trading systems, for just a few hundred dollars – its not that easy so don’t buy them. Trading is hard, but for the forex trader prepared to put in the work, the rewards can be immense.
Do your homework, be realistic and you could soon be making big returns from forex charts and executing some great trading signals for big profits. Good luck!
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