Here's a second installment in what was a popular article, outlining common mistakes made by new and experienced forex traders alike that cause them to "blow up" their accounts and lose all their money.
Here is the next batch of common mistakes, and information to help you avoid them:
Lack of Diversification - Trading only one pair
Often we find that traders who have wiped out their account have focused all their attention on one pair, or a narrow grouping of pairs. Diversifying across multiple pairs (and markets) allows you to smooth the volatility curve and improve long-term gains.
Frequent whipsaws and fakeouts caused by too tight stops
It's happened to all of us. We do some sound analysis, evaluate a position, and jump into a solid trade. The market subsequently moves to the downside (or upside) really fast and stops us out of the trade. Then the pair heads right in the way of our analysis, but we miss the opportunity because our stop caused us to get whipsawn.
So often a system, strategy or trading methodology works well on paper, and our backtesting looks strong, but when we execute it in the live market, we find our gains are minimized and our losses mount. Often this is because we fail to consider trading costs.
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