==Page 1==
45 Ways to Avoid Losing Money Trading FOREX
Jimmy Young
1) Knowledge Deficiency Î Most new FOREX traders donÓt take the time to learn
what drives currency rates (primarily fundamentals). When news or a statement is
due out they must close out their positions and sit out the best trading opportunities.
They are taught to only trade after the market calms down. So essentially they miss
the whole move and then trade the random noise that follows a fundamental price
move. Just think for a moment about technically trading the aftermath of a price
move; there is no potential.
2) Overtrading - Trading often with tight stops and tiny profit targets will only
make the broker rich. The desire to ÐjustÑ make a few hundred dollars a day by
locking in tiny profits whenever possible is a losing strategy.
3) Over leveraged - Leverage is a two way street. The brokers want you to use
high leverage because that means more spread income because your position size
determines the amount of spread income; the bigger the position the more spread
income the broker earns.
4) Relying on Others Î Real traders play a lone hand; they make their own
decisions and donÓt rely on others to make their trading decisions for them; there is
no halfway; either trade for yourself or have someone else trade for you.
5) Stop Losses Î Putting tight stop losses with retail brokers is a recipe for disaster.
When you put on a trade commit to a reasonable stop loss limit that allows your
trade a fair chance to develop.
6) Demo Accounts Î Broker demo accounts are a shill game of sorts; theyÓre not as
time sensitive as real accounts and therefore give the impression that time sensitive
trading systems, such as short-term moving average crossovers can be consistently
profitably traded; once you start dealing with real money reality is quick to set in.
7) Trading During Off Hours Î Bank FX traders, option traders, and hedge funds
have a huge advantage during off hours; they can push the currencies around when
no volume is going through and the end game is new traders get fleeced trying to
trade signals. There is only one signal during off hours Î stay out.
8) Trading a Currency, Not a Pair Î Being right about a currency is half a trade;
success or failure depends upon being right about the second currency that makes
up the pair.
9) No Trading Plan - Make money is not a trading plan. A trading plan is a
blueprint for trading success; it spells out what you see your edge as being; if you
donÓt have an edge, you donÓt have a plan, and likely youÓll wind up a statistic (part
of the 95% of new traders that lose and quit).
10) Trading Against Prevailing Trend Î There is a huge difference between
buying cheaply on the way down and buying cheaply. What was a low price quickly
becomes a high price when youÓre trading against the trend.
==Page 2==
11) Exiting Trades Poorly Î If you put on a trade and itÓs not working make sure
you exit properly; donÓt compound the damage. If youÓre in a winning trade donÓt
talk yourself out of the position because youÓre bored or want to relieve stress;
stress is a natural part of trading; get use to it.
12) Trading Too Short-term Î If youÓre profit target is less than 20 points donÓt do
the trade; the spread you pay to enter the trade makes the odds way against you
when you go for these tiny profits.
13) Picking Tops and Bottoms - Looking for bargains works well at the
supermarket but not trading foreign exchange; try to trade in the direction the price
is going and youÓre results will improve.
14) Being Too Smart Î The most successful traders I know are high school
graduates. They keep it simple and donÓt look beyond the obvious; their results are
excellent.
15) Not Trading Around News Time Î Most of the big moves occur around news
time. The volume is high and the moves are real; there is no better time to trade
fundamentally or technically than when news is released; this is when the real
money adjusts their positions and as a result the prices changes reflect serious
currency flow (compared to quiet times when Bank traders rule the market with their
customer order flow.
16) Ignore Technical Condition Î Determining whether the market is over-
extended long or over-extended short is a key determinant of near time price action.
Spike moves often occur when the market is all one way.
17) Emotional Trading Î When you donÓt pre-plan youÓre trades essentially itÓs a
thought and not an idea; thoughts are emotions and a very poor basis for doing
trades. Do people generally say intelligent things when they are upset and emotional;
I donÓt think so.
18) Lack of Confidence Î Confidence only comes from successful trading. If you
lose money early in your trading career itÓs very difficult to gain true confidence; the
trick is donÓt go off half-cocked; learn the business before you trade.
19) Lack of Courage to Take a Loss Î There is nothing macho or gutsy about
riding a loss, just stupidity and cowardice. It takes guts to accept your loss and wait
for tomorrow to try again. Getting married to a bad position ruins lots of traders. The
thing to remember is the market does crazy things often so donÓt get married to any
one trade; itÓs just a trade. One good trade will not make you a trading success;
rather itÓs monthly and annual performance that defines a good trader.
20) Not Focusing on the Trade at Hand Î There is no room for fantasizing in
successful trading. Counting up and mentally spending profits you havenÓt made yet
is mental masturbation and does you no good. Same with worrying about a loss that
hasnÓt happened yet. Focus on your position and have a reasonable stop loss in place
at the time you do the trade. Then be like an astronaut Î sit back and enjoy the ride;
no sense worrying because you have no real control; the market will do what it
wants to do.
==Page 3==
21) Interpreting FOREX News Incorrectly Î Fact is the press only has a very
superficial understanding of the news they are reporting and tend to focus on one
element and miss the point. Learn to read the source documents and understand it
for real.
22) Lucky or Good Î Your account balance changes donÓt tell you the whole story
about your trading; fact is if your taking a lot of risk and making money you will
eventually crash and burn. Look at the individual trade details; focus on your big
loses and losing streaks. Ask yourself this; if I had a couple of consecutive losing
streaks or a couple of consecutive big loses, how would my account balance look.
Generally, traders making money without big daily loses have the best chance of
sustaining positive performance. The others are accidents waiting to happen.
23) Too Many Charity Trades Î When you make money on a well thought out
trade donÓt give back half on a whim; invest your profits from good trades on the
next good trade.
24) Courage Under Fire Î When a policeman breaks down the door to a drug
dealers apartment he is scared but he does it anyway. When a fireman climbs onto
the roof of a burning building he is scared but does it anyway; and gets the job done.
Same with trading; itÓs ok to be scared but you have to pull the trigger; no trigger Î
no trades Î no profits Î no trader.
25) Quality Trading Time Î I suggest 3 hours a day of quality, focused trading
time; thatÓs about all your brain allows. When your trading being 100% focused; half
way is bullshitÓ it doesnÓt work. DonÓt even think that time spent in front of the
computer watching the rates has any correlation to profitability; it doesnÓt. Spend
less time but when your trading be 100% focused on trading.
26) Rationalizing Î Killer. Absolute Killer. Put your trade on and let it run. If it hits
your reasonable pre-determined stop your out. Think of yourself as a prizefighter;
you just got knocked out. Moving your stop is like getting up after being crushed
with a knockout blow; itÓs pointless; things will only get worse. DonÓt ignore the
obvious; your wrong Î get out. Come back the next day and try again. A small loss
will not hurt you; a catastrophic loss will.
27) Mixing Apples and Oranges Î Have you ever done this; you see the EURUSD
trading higher so you buy GBPUSD because it ÐhasnÓt moved yetÑ. ThatÓs a mistake.
Most of the time the reason the GBPUSD hasnÓt moved yet is because its already
overbought or some 4:30am UK news was bearish. DonÓt mix apples and oranges; if
EURUSD looks bid buy EURUSD.
28) Avoiding the Hard Trades Î Bank FX traders have an axiom; the harder the
trade is to do the better the trade. This I learned from experience; when I needed to
buy EURUSD and it was hard to get them thatÓs when itÓs necessary to pay up and
get the business done. When itÓs easy to get them then sit back and wait for better
levels. So if your trying to get into a trade or more importantly get out of a trade
donÓt putz around for a few points; get your business done.
29) Too Much Detail Î If your trading more than 2 indicators then you need to
clean house. Having many indicators stifles trading and finds reasons not to trade. A
setup and a trigger is all you need.
==Page 4==
30) Giving Up Too Easy Î Your first trade of the day may not be your best but
certainly itÓs no reason to quit. I have a preset daily trading limit and I use it; you
canÓt make money by making excuses; getting trades wrong is natural and should be
expected.
31) Jumping the Gun Î DonÓt be penny wise and dollar foolish; wait for your trade
signal to be clear; put on your trade and give it a decent size stop loss so that you
donÓt get knocked out by random noise. Do trades donÓtÓ buy lottery tickets
(extremely tight stops).
32) Afraid to Take a Loss - trading is not personal; itÓs business. DonÓt think that a
poor trade is a reflection on you. It could be your just ahead of your time or a
commercial order hits the market and temporarily creates a small unexpected move.
Again, place your stop beforehand and NEVER increase your pre-determined risk; if
itÓs going bad it will probably get worse; I think thatÓs Einstein Ðin motion stays in
motionÈÑ
33) Over-Relying on Risk Reward Î There is zero advantage in risk reward; if you
put a 20 point stop and a 60 point profit your chances are probably 3-1 that you will
lose; actually with the spread its more like 4 to 1 (from entry point if it goes down 17
points you lose or up 63 you win; 17/63 is close to 4-1).
34) Trading for Wrong Reasons Î Because the EURUSD is going up is not in itself
a reason to buy. Buying EURUSD because its not moving so little risk is even worse;
youÓre paying the toll (spread) without even a hint that you will get a directional
move. If your bored donÓt trade; the reason your bored is there is no trade to do in
the first place.
35) Rumors Î Rumors are rumors almost 100% of the time; think about where in
the motion you heard the rumor; if EURUSD is up 50 points in last 15 minutes and
the rumor is dollar negative, well then you missed it. Whenever you trades
determine where in the motion you are entering.
36) Trading Short-term Moving Average Crossovers Î This is the money sucker
of the century. When the shorter term moving average cross the longer term moving
average it only means that the average price in the short run is equal to the average
price in the longer run. For the life of me I cannot understand why this is bullish or
bearish. Easy to set up on software, complete with lights, bells and whistles, and
good for the seller getting thousands for the software but in terms of creating profit
itÓs a zero.
37) Stochastic Î Another money sucker. Personally I think this indicator is used
backwards; when it first signals an overdone condition thatÓs when I think the big
spike in the ÐoverdoneÑ currency pair occurs. To be overbought means strong and
oversold means weak. Try buying on the first sign of overbought and selling on the
first sign of oversold; youÓll be with the trend and likely have identified a move with
plenty of juice left. So if %k and %d are both crossing 80; buy! (Same on sell side;
sell at 20)
38) Wrong Broker Î A lot of FOREX brokers are horrible; get a good one. Read
forums and chats in several different places to get an unbiased opinion.
==Page 5==
39) Simulated Results Î Watch out for Ðblack boxÑ systems; these are trading
systems that donÓt divulge how the trade signals are generated. Great majority of
them are absolute garbage. They show you a track record of extraordinary results
but think about it; if you could build a trading system with half a dozen filters using
the benefit of hindsight, couldnÓt you too come up with a great system. Of course
going forward is an entirely different story. High-speed number crunching capabilities
allows for building great hindsight trading systems; BEWARE.
40) Inconsistency Î Every business (FOREX trading included) requires a business
plan (trading plan). Unless you have taken the time to write down a set of rules that
you can and will follow, itÓs likely your trading will remain unfocused and
directionless. Make a plan, have rules, follow them set goals that are realistic and
you will achieve them.
41) Master of None Î Focus on one currency for technical trading; each currency
has a unique way of trading and unless you get intimate with it you will never truly
understand its underlying idiosyncrasies. DonÓt spread yourself too thin Î focus Î
master one currency at a time.
42) Thinking Long Term Î DonÓt do it. Stay in the moment. Especially if youÓre a
day trader. It doesnÓt matter what happens next week or next month, if your trading
with 30 to 50 point stops restrict your thought process to whatÓs happening right
now. That is not to stay the long-term trend is not important; it is to say the long-
term trend will not always help you when your trading a significantly shorter time
frame.
43) Overconfidence Î Trading is not easy; statistics show 95% failure rate. If your
doing well donÓt take your success for granted; always be on the lookout for ways to
improve what youÓre doing.
44) Getting Pumped Up Î The trick is to maintain an even keel; when you are in a
trade you want to think exactly as you would if you didnÓt have a trade on. To do this
requires a relaxed disposition; this is not a football game; donÓt get psyched up;
relax and try to enjoy it.
45) Staying in the Game Î I donÓt recommend demo trading because traders learn
bad habits when trading with play money. I also donÓt think Ðletting it all hang outÑ
right away is wise either. Start off doing trades and taking risk that is relatively small
but still makes a difference to you if you win or lose; about a quarter to a third of
what you expect to reach as your trading matures is reasonable.
Retired proven professional Bank FOREX trader with over 20 years of hands-
on FOREX trading experience.
Email: jimmy@eurusdtrader.com
Web: http://www.eurusdtrader.com
