The Forex Trading Warning Signals

After teaching traders for a while you get to notice typical trading patterns. I see a lot of traders struggling with the effects of their emotional trading decisions and not taking the time out to look deeper into the cause of their behavior. There are underlying layers of thought that make us see and act in certain ways.

Three key mistakes

Apart from the dark deep subject of trading psychology there are three basic mistakes I see again and again.

Overtrading

First is overtrading. That is, committing too much to a trade. If you commit too much to a trade it will have you doing the emotional trading dance which is not very graceful getting up and down looking at the price every two minutes basically poking the trade with a stick. This can force you to take emotional trading decisions which are not rational. A right author to read on this is Mark Douglass. If you would like more information on specialists to assist you in coming to grips with your underlying trading thoughts and how to change them, email me for details.

Overcautious

If you overtrade, so you will probably tend to place stops too close to the market trying to limit losses. The problem with this is that you get flicked out of the main trend. It is far additional sensible to trade within your fiscal boundaries. To get this in perspective I recommend the author Van Tharp. He outlines correct position sizing and risk management as you need to get time on your side and understanding risk management will assist. If you work outside your risk parameters then it's only a matter of time before your account will be in disrepair. Less is more.

Overdoing it

Thirdly trading in corrections without any understanding of them is severe. If we have been making money in the old friendly trend and have left with profits, we tend to have become attached to that stock and will re-enter it again for no real reason except that it’s been a good friend.


More about corrections

Corrections will collect your currency. So, understand them or avoid them. Looking at a chart in hindsight is a great learning tool as a market that has trended reveals the markets' pattern very clearly. That is, an uptrend then a correction, then an uptrend, then a correction and so on. So all we need to do is enter after the correction has finished. Now how hard can that be?

The majority of traders simply know a little about a tendency and nothing about corrections. Understanding the bull/bear, yin/yang, positive/negative, the profit taking, the rebalancing and repositioning of the larger players through corrections will allow you to take positions as the specialists take theirs as the trend is being engineered. This is normally seen via price and volume or both of these combined in patterns. I find Elliott has the best understanding of correctional patterns and market behavior and Gann also understood price and time. I likewise mentioned in an earlier article about Trading Levels which is a bare way to handle corrections that is to avoid them.