4.TAKING SMALL PROFITS AND LET TING YOUR LOSSES RUN....

Welcome back to our series...........

A very common mistake among Forex traders is taking small profits and letting losses run. This is often the result of not having a trade plan. After one or two losing trades,you are likely to take a small profit on the next trade even though that trade could have turned into a large winner
that would have offset your previous losses. Letting losses run often happens to new traders and is not an uncommon problem among even professional Forex traders.

After entering a trade, you do not know where to get out. Once you start losing money on a particular trade, the tendency is to let the loss get larger and larger as you hope that the market will retrace to let you break even – which of course, it seldom does.

This mistake is overcome by using pre-determined protective stop loss orders or hedging to prevent your losses from running, and following your trade plan to take profits at
your profit targets.

3 NOT USING PROTECTIVE STOP LOSS ORDER

Welcome back our series on the common trading mistakes traders make during trading continues...have a swell time reading

This mistake fits right in with the lack of a trade plan and money management. It is the failure to use protective stop orders once you enter a trade – not mental stops, but real stops that cannot be removed. All too often, Forex traders use mental stops because they have been stopped out in the past and subsequently watched as the market moved in their direction. This does not invalidate the use of protective stops – it means that the stop was most likely in the wrong place, as it was likely not a good technical stop.

When a protective stop that was determined before a trade was entered is hit, it means the technical analysis was probably incorrect... your trade plan was wrong.With a mental stop, as soon as the market has gone throughBthe protective stop price, you no longer act like a rational
human being. Now, you are likely to make decisions based on fear, greed and hope. How many times have you had a mental stop and tried to make a decision whether or not to take a loss?

Typically, by the time the decision is made and acted upon, the market has run further against you. Invariably,you decide to hold onto the trade hoping that you can get out on a Fibonacci retracement to your previous stop price. Unfortunately in many cases, it never touches that
price again and you end up taking a large loss. Or, you make the mistake of holding the trade an extra day because you hope the market moves higher the next day. But the next day, the market is lower yet and by then the loss is so large you cannot “afford” to get out of the position – and what should have been a small loss turns into a disastrous loss.

There is an old saying that ‘the first loss is the smallest.’ It is also the easiest to take, even though it may seem hard at the time.The only way to overcome this mistake is to have an unbreakable rule with the discipline to follow it that a protective stop loss order or hedge must be placed on every trade.I have found the easiest way to take a loss is to place the protective stop order or hedge limit order the moment or immediately after entering the trade.Do your homework when the markets are slow. Place your orders while the market is still quiet. Another rule to follow – under no circumstances should an initial protective stop order be changed to increase the risk on a trade, but only to reduce it.

2.NOT HAVING A MONEY MANAGEMENT GAME PLAN

This is the second most common trading mistakes traders make.I am constantly amazed at the number of Forex traders and brokers that have no concept of ‘money management.’Money management is controlling risk through the use of protective stops or hedging, while balancing the potentialfor profit against the potential for loss.Here is an example of poor money management that I see.

Almost daily... many traders refer to a trade that might lose $500 if they are wrong and make $1,000 if they are right as a two-to-one risk/reward ratio. This is usually considered a
“decent” trade. What is wrong is that it is just as important to know the proper win/loss ratio as knowing how much you are going to lose if you are wrong and how much you are going to make if you are right, but what are the odds of making money... of being right? What are your odds of
losing money, or being wrong?

Good money management means knowing a trade’s profit objective and the odds of being right or wrong and controlling the risk with protective stops. You are better off with a trade where you might lose $1,000 if you are wrong and make $500 if you are right, if the trade works eight times out of ten, than to take a trade where you make $1,000 if you are right and lose only $500 if you are wrong, but the trade works only one time out of three. Developing and testing money management concepts is the way to overcome this problem. An entire book could be written on
money management principles, but the key is to know your win percentages along with proper risk/reward ratios.

Get the third most common mistakes by fx traders on the SUCCESS CAPSULES PAGE

NOT USING A "TRADING PLAN"

I did promised in my success capsule page on this blog that,I will be explaining in details the most common mistakes traders commit while trading.

Any coach in any sport will tell you, “You must have a game plan!” Well, the same thing is true in trading. I am in constant contact with hundreds of traders and I am truly baffled that, trade after trade after trade, one of the most common mistakes a trader makes is not having a defined
trading game plan.

A trader who thinks a market is about to go up will usuallysay something like –“I think the EUR/USD is going up to $1.3000. Where do you think I should buy it?” My response
is usually something like, “What are you risking on the trade? In other words, “Where are you going to get out if you are wrong?” Often the response is silence, or perhaps a puzzled “Huh?” No thought was ever given about being wrong or where to place the stop. My next question, “If it does go up, how and where are you going to get out?” I often receive the same response.

More than 90% of the Forex traders that I come in contact with have no trade plan. That means that they do not know what to do if they are wrong and they do not know what to do if they are right. The large paper profit they made often turns into a large realized loss because they did
not know where to get out.

The most important move a Forex trader can make is to develop a trade plan, before entering the trade. The trade plan should consist of these guidelines.

• Know how and where you are going to enter a trade.

• Know how much money you are willing to risk on the trade.

• Know how and where you are going to get out if you are wrong.

• Know how and where you are going to take profits if you are right.

• Know how much money you are going to make if you are right.

• Have a protective stop loss in case the market does the unexpected.

• Have an approximate idea of when a market should meet your trade objective.

When should the market begin to make its move, and if it does not move as expected, get out!

Any coach in any sport will tell you, “You must have a game plan!” Well, the same thing is true in trading. I am in constant contact with hundreds of traders and I am truly baffled that, trade after trade after trade, one of the most common mistakes a trader makes is not having a defined
trading game plan.

A trader who thinks a market is about to go up will usuallysay something like –“I think the EUR/USD is going up to $1.3000. Where do you think I should buy it?” My response
is usually something like, “What are you risking on the trade? In other words, “Where are you going to get out if you are wrong?” Often the response is silence, or perhaps a puzzled “Huh?” No thought was ever given about being wrong or where to place the stop. My next question, “If
it does go up, how and where are you going to get out?” I often receive the same response.
More than 90% of the Forex traders that I come in contact with have no trade plan. That means that they do not know what to do if they are wrong and they do not know what to do if they are right. The large paper profit they made often turns into a large realized loss because they did
not know where to get out.
The most important move a Forex trader can make is to
develop a trade plan, before entering the trade. The trade
plan should consist of these guidelines.
• Know how and where you are going to enter a
trade.
• Know how much money you are willing to risk on
the trade.
• Know how and where you are going to get out if you
are wrong.
• Know how and where you are going to take profits