Easy Come, Easy Go: Dipping your Toe Into Forex Waters

When it comes to playing the financial markets it is always wise to remember that old proverb about a fool and his money soon being parted, so your aim is to explore ways of getting a better return on your money, but do your research to avoid some of the classic rookie errors.

If you are considering dipping your toe into the forex markets it would be a good idea to learn about the potential pitfalls as well as the opportunities so that your learning curve doesn’t end up costing you a chunk of your hard-earned capital.

Here are some pointers on what new investors should be looking out for when starting to trade forex markets, including why it pays to avoid random decisions, the problem with averaging down, plus why stop loss is a no-brainer.

Consistency is key

If you were to analyze the methods of a most successful forex traders you would find a number of characteristics and strategies that are common traits amongst most of them and consistency is right up there on the list.

Taking a scattergun approach to trading and making random decisions is unlikely to prove a lucrative move.

It always pays to use resources like The Top Forex to do your research and take your time to formulate a strategy that produces regular profits on a consistent basis. One of the attractions of playing financial markets is that you are the one in charge of your own rules and make all the decisions but forex markets and other similar arenas can be unforgiving and don’t tend to reward investors who lack the discipline to stick to a winning formula once they have found it.

Find out what style of trading and which markets you seem to do well at, then have the discipline to ditch your impulse for random decisions in favor of a steady and consistent approach.

The problem with averaging down

You will almost certainly discover averaging down as a trading strategy at some point in your forex trading career and although it is not something that many traders set out to do initially when they start trading, it can be a system you suddenly find yourself using.

The fundamental problem with averaging down is that you end up holding a losing position for too long which can cost you vital capital. Losing a decent percentage of your capital in just a handful of trades is going to make it harder to recover and get back into the black.

A lot of traders try averaging down and then move on when they discover how it can threaten their liquidity, so be mindful of this when you encounter this method trading.

You must use stop losses

It can be difficult to press the button and crystallize a loss but one of the biggest rookie errors you can make is to not make good use of stop losses.

Not using a stop loss leaves you exposed to larger losses and a few wrong moves could be damaging to your capital base. It is your safety barrier when you make a bad call, which happens to all of us, so don’t be stubborn and make things worse, make good use of a stop loss facility and protect more of your wealth so that you move on and find a trade that proves to be profitable.

Forex trading can be a steep learning curve but it makes sense to learn from those that have been there before you, especially when you consider that it’s your money that could be at risk if you make some avoidable errors.

Join our newsletter

Get financial tips from a licensed professional directly to your inbox.

Powered by ConvertKit

Speak Your Mind