Friday, January 18, 2019

Big Mistakes That I've Made in The Beginning Days of Undertaking Foreign Exchange Trading

I’ve made countless mistakes way back in my early days of doing foreign exchange trading. Nobody taught me how to trade currency and I had no clue about any forex trading platform to use. That’s why I did my own research, I watch a lot videos, read a couple of books and blogs about it. After trial and error and all those mistakes that I’ve made I came to realize that experience is the best teacher. I want to share with you some of the lesson I’ve learned in this post. I will try to explain all of the major mistakes that I have encountered when I started my forex trading journey.

Very optimistic to go live trade after seeing positive gains in a demo account with only less than a week of practice.

 This is my first mistake when I started trading. As a beginner, I jumped in directly to trading using real money and guess what happened to my first trade? I won! Not that I knew what risk and reward ratio is but I closed that trade that time with a positive gain. Apparently that’s what they call the BEGINNERS LUCK! After that trade, my luck just seems to run out in every trade I took and my first account is finished in less than a week.

What I’d like to point out here is that I was very excited about forex trading that I could only think of the reward, positive side of it and I was very na├»ve, blinded to the consequences when I didn’t get it right. The hardest part of it when I think about it now is that I could have avoided those losses if only I am more familiar about the trading platform that I used. Such as the movement of the spread during a news event, during end of day, during weekends, volatility and proper usage of leverage.

My suggestion to all aspiring forex trader would be to get to know first your trading platform. Observe what happens to the market and the spreads during news events, during end of day and end of the week. If only I had put more time trading in my demo account perhaps I would noticed those things and avoided those mistakes. So guys don’t take for granted trading using a demo account. At least try playing with it for a month or two.

I live in Asia, that’s why I traded during the Asian session which should be a big NO NO

What I mean here is taking a trade during a time when the open market is the Asian markets like (Australia), Japan, Singapore and China. Don’t get me wrong here. I know there are a lot of profitable forex traders out here who trades during the Asian session. But in my experience I had a very slim chance of winning during these sessions.

Most of the fake moves in the market usually happen during the Asean market. Like for example, a certain pair went up during the said session but suddenly went down when the Western markets opened. This is what they called the “FAKEY” move of the market. The market fakes the traders, prices seems to go to one direction and suddenly changes to the opposite.

So how do you avoid this? Well just don’t trade during these hours and for me since I traded the 4 hour time frame it’s the best time to plan my set ups and wait for pullbacks to enter trades.

Discovering ForexFactory and trading the news every now and then

I know! I just know that you will eventually discover this website and you will learn that news events will affect the price movement of the forex pairs. You will know that during this scheduled time, especially the RED FLAG NEWS, prices are gonna be wild.

As I was still learning forex as a beginner, this is what I often do. I looked at the scheduled news and put on an order on it by just randomly guessing which way the market goes. I hoped for positive news when I traded long and I hoped for negative news when I go short. What I did here was very stupid; I entered a trade without any reason behind it. And as expected the result will almost always be a disaster! Deposit time again.

So how do we avoid this mistake? If you have open trades prior to the news events is no problem. Just don’t put orders during the scheduled event. Don’t be greedy; eliminate the thinking that you will miss that possible big move which should be a big profit for you. Always think about capital preservation.


Not following a standard risk to reward ratio when executing a trade

I never knew that I should plan on the amount that I would bet during those time when I traded the currency pairs. It was only when I started reading and watching youtube videos of successful forex trader that I understood it all. You know you just don’t bet randomly, there are systems to this. Most advice would be to risk only 1 % to 3% of your capital.

Let’s say you have a 100k USD capital. And you had a 1:3 risk to reward ratio strategy. That means you only need to bet 1k-3k USD or 1%-3% USD of your account every trade and expect to win 3%-9% gain if ever you are right. The reason for this is that you can easily calculate your gains and losses in the market. Also, it give you control over the amount of money that you are comfortable losing in each trade without making you stress and emotional.

I believe having a good risk to reward ratio plan is essential for capital preservation. As what I have said before, being on the defensive for capital preservation should always be the priority of a beginner forex trader.

Unclear forex trading strategy which leads to over trading and over leveraging

Beginners in forex trading most of the time have no preplanned trading strategy upon entering the game of currency trading. Perhaps they have the idea of support and resistance, bullish pin bars and bearish pin bars but that knowledge is not enough.

You can’t just jump on a trade every time the price is in a support or a resistance zone. You can’t just take on a trade just because a bullish or a bearish pin bar formed in the 4 hour time frame or any time frame in that manner. Another thing also is the consistency of the amount of risk and reward ratio in every trade should be look upon. Every beginners need to have a well-defined trading system and rules in every trade that they would take. A systematic approach should be involved in it.

Find a trading system that fits your personality and lifestyle. When you are doing it part time perhaps you can try trading the 4 hour chart. If you really don’t have the time to look at the chart every 4 hours then you can trade the daily chart which I think is the best time frame for starters.

Leveraging for me is a very good thing because I started with small amount of capital. But usually this is the main cause why most of the traders burned their capitals to the ground. The emotional and the psychological aspect of trading plays the biggest obstacle that we all need to overcome. One example of this is when I loss a trade and I jumped right back in the market, this time using twice the amount of leverage in the hope that I can earn back my losing trade which eventually resulted to another loss. But this time the loss was huge, twice the amount of the loss that I was trying to recover. Imagine what would you feel after this happened to you. It’s really disappointing but I don’t know why you just can’t stop trading, it’s like you got addicted to the market even though you are losing. This is gonna be another topic about trading psychology which I plan to write soon.

You cannot control the market, you can only control yourself so don’t try taking your revenge in the market after a frustrating loss. Because at this moment you become driven by your emotion so much and cannot think logically anymore.

Fear of missing out the opportunities or what most traders called “FOMO”

The best example I could give to FOMO is when you saw a set up and you say to yourself this is the best set up in the world, It’s the best opportunity I have ever seen, I need to take it. I need to take it! But the price already moved a little bit further from the set up because you just noticed it and yet you still chase the price and took the trade with a very tight stop loss and eventually the price pulled back and stopped you before it burst out going to your desired direction.

Happened to me all the time, which is not good. Later on I came to realize that there is always opportunity in the market and the market is not going anywhere. If I saw a good set up but the price already moved what I do is I wait for pullbacks before I enter or if there’s no pullbacks then I let it be and move on to find another opportunity. There are plenty trade set ups occur in the market every week, there’s no need to chase one single trade.

Jumping from one strategy to another

If you type forex trading strategies in YouTube a lot of videos will pop out. You choose carefully strategy that fits your lifestyle and stick to it. Bear in mind also that all trading strategy has drawdowns so don’t expect to have 100% win rate.

The reason why I made this mistake jumping from one strategy to another strategy is because I felt like the one that I am using is not giving me gains anymore because of my losing streak. I didn’t realize that those are only setbacks and is normal.

To make this clear let’s take this example:

Let’s say you have a strategy that has 70% win rate. So that means in every 100 trade you take you will have a RANDOM DISTRIBUTION of 70 winning trades and 30 losing trades. Since these are RANDOM there is a possibility that you will have a series of winning trades and A SERIES OF LOSSING TRADES AS WELL. That’s why don’t be discourage and think that the strategy that you are using has lost its touch and is not working anymore and I need to look for another strategy that works.

My advice here is to stick to a strategy for at least 3 months. And when this strategy is not giving you gains then that’s the time that you’ll have to find another one.

I want to end this post with an inspiring quote in the hopes that you will not give up no matter what happens. Don’t be afraid to make mistakes because that’s where we grow.

Bye for now and I’ll see you again my friend!

“Every artist was first an amateur”
- Ralph Waldo Emerson


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