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.
Knowing these pitfalls, and the ways to avoid them can help you avoid learning hard lessons. If you missed it, here's the link to part 1: Avoid Losing All Your Money in the Forex.
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.
Disclaimer: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary and does not constitute investment advice. Forex Capital Markets LLC. will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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