Forex Trading: When In Doubt, Stay Out



Posted: Saturday, October 31, 2009

by Ricky Weber
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One of the reasons that many people fail at forex trading is that they overtrade their account, and they end up taking a loss on an open position out of fear of missing a potential trading opportunity. Placing too many trades too frequently is a novice trading mistake, and in order to prevent against overtrading it can help if you remember the simple quote "when in doubt, stay out." Trading based on emotions like fear or greed is a sure path to financial ruin, so in order to prevent against this it is important to create a trading strategy with simple rules and a checklist of certain market conditions, so that you can take a look at where the market is and easily see whether or not it is logical to place a trade.

One of the greatest benefits of today's foreign exchange market is that instead of the thousands of different trading instruments that you would have if you trade the stock market, you can count the biggest currency pairs in the world on your two hands meaning that it is much easier to track and also much less confusing. When you decide to follow only one or two major currency pairs, there is much less information to keep track of and you can easily follow the values of the fundamental or technical indicators that you are using in your strategy.

Forming a trading strategy is the most important step that a forex trader can take, because if you are not following any type of strategy and are simply trading on impulse then you are gambling with your money and no longer investing. Forex trading means that you are taking calculated risks by buying and selling different currencies at different times with the hope of closing the trade with a profit, and being able to consistently grow your money over time despite occasional losing trades. For this to work, it is important not to place too many trades in too short of a span of time due to being anxious about missing out on a potential price swing. Remember that it is always better to miss a trading opportunity than it is to enter the market at the wrong time in the wrong direction and take a loss.

Uncertainty is the enemy of the successful forex trader, and one of the reasons you might be experiencing uncertainty or doubt is due to something called "analysis paralysis." There are potentially hundreds of different news stories, economic stats, and technical indicators out there that can relay to you accurate trading signals, but if you try to take in all of that information all at once it can be paralyzing. This is the reason why it is always better to keep your trading strategy simple and logical, and testing a new trading strategy out on a demo account can help to alleviate doubt when it comes time to trade your live account.

Many forex brokers promote the fact that they can offer commission free trading, but the way that a broker earns money is by pricing in a difference between the prices at which a currency is bought or sold. This difference in buy and sell prices is called the spread, which means that you must make a small gain on your open position just to cover the spread and break even. When you place too many trades, especially if you do not hold an open position for very long, you risk depleting your account balance due to pips that are lost on the spreads of those trades.

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Ricky Weber is the creator of http://TheCurrencyMarkets.com which is a professional learning portal designed to teach people about online currency trading.
Are you interested in making money from home with online currency trading?
If so you can read "The Complete Guide To Online Currency Trading" available at http://TheCurrencyMarkets.com/foreign-exchange-forex.htm
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