Pacific 4X

Five Costly Beginning Forex Mistakes

Five Costly Forex Mistakes Or ... How Not to Begin Trading Forex

Mistake Number One
Broker Selection Modern Day Bucket Shops

This is a very critical error. I didn't review any of the brokers that I was considering, and ended up paying a lot for that mistake. The problem is something like "I don't want to risk a lot of money initially, so the mini account looks good." The problem with the mini account is that I don't think it hooks up very well with the big players, therefore your broker often takes the opposite side of your trades. The analogy that comes to mind is like the baby pool, at your local country club. Yes, it is a pool and you can get wet in it, but it is not connected to the big pool and you are not going to do many laps in the baby pool. How many times did I watch the price go after my stop, hit it and then reverse significantly, the other direction. It gets very discouraging when you pick a winning trade, and lose anyway.

One of the best sites I have seen yet to help you evaluate brokers is ForexPeaceArmy.com. For more on bucket shops please read "Reminiscences of a Stock Operator" by Edwin LeFevre, if you haven't already. This is a classic about the life of Jesse Livermore, who even today is still considered to be the world's greatest trader. It is definitely worth your time, especially if you are trading or contemplating trading. His insights into not only trading but how to interpret the news are amazing. A lot of brokers these days are in essence "Modern Day Bucket Shops." This is especially true for the smaller accounts at these brokers, the minis and micros.

Mistake Number Two
Learn Charting Japanese Candles MACD

Don't try to determine market direction without being able to look at a candle chart and understand it. I would simply watch the number and then "guess" the direction, without looking at any charts. This was a huge mistake. Your chance of ever being right approaches zero at the speed of light. Japanese candles tell you a lot about market sentiment. Also, learn to use at least the MACD (moving average convergence divergence) indicator. This is one of the more reliable indicators used daily by most traders. The 200 EMA and Bollinger Bands are also very helpful. Some traders feel that the 200 EMA (exponential moving average) is the most important indicator in all of trading.

Mistake Number Three
Watch Out For The News

I remember once having just placed a trade (fortunately for me it was a demo account) when all of the sudden the trade was moving against my position so fast that I couldn't even get out it. I was not really "news" wise at that time and was actually trading during the non-farm payrolls announcement, of which I was not aware. That is a huge mistake. Always, before you place any trade be sure of what news is coming when. Generally speaking, unless you want to play news announcements, it is best not to trade too close to news time which is usually 8:30 am Eastern. Occasionally there will be news announcements such as the FOMC which usually comes out around 2:15pm Eastern.

Mistake Number Four
Software

When I first started I didn't have a preference as I didn't know any software well. Big mistake! You need to be familiar with the trading interface so that you can quickly get in and out of trades. I now prefer Metatrader, but this is an individual choice. This software gets fair reviews, is very intuitive and can be customized to your liking. It is very easy to switch from daily charts to five minute charts, quickly.

Mistake Number Five
World Hours

Before I kept the world hours running on my desktop, I would often get caught in a bad losing position usually around 9:30 to 10:00 am (Pacific Time). After becoming aware of world market hours I realized that this time was right at the London close. It is a well established fast that there is usually a lot of trading at both the London open and the close. Some traders prefer the London open and do very well with this. Peter Bain is one of them.

COT Charts

The commitment of traders charts are very helpful to find out where the "big dogs" are putting their money. I have to thank Peter Bain for this tip.

Your Own Style

No two traders, trade the same. Over time you will find yourself more comfortable with some trades and not so interested in others. Some are good at short swings and others like to take a more long term approach. Don't ever feel like you have to trade exactly like anyone else.

Summary

It is possible to waste a lot of money "learning" to trade forex. You can take the "dumb" approach (like I did) -trade a demo account till you "win" a few trades and then open a live account and lose a lot of money. Or, you can be smart -open the demo account and simultaneously spend the money you would waste on your first live account on Peter Bain's program. There is no 100% assured path to success in forex trading -but this is as close as it gets. Only 5-10% of traders consistently have positive trades while 90% have lost their initial deposit within six months. Forex trading is a "zero sum" game with some really big players (the banks, trust funds, hedge funds and large corporations) and some really small players, individuals like you and me. Not really an even playing field. Knowledge is your best bet to try to level this playing field. There is no better place to discover that knowledge than with a successful veteran trader like Peter Bain.

At Pacific4x.com we have tried to bring together as much of this information as possible on one site.

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posted by John Mericle M.D. D.A.B.R. @ 4:01 PM