Nor is it about stop losses or even risk management, although all of these things are important. No, the biggest mistake is to believe in one’s feelings, which means you need to trade what you see and not what you think.

Foreign Exchange Currency Trading

Sounds weird?

Here is a post on making money online from home with forex trading.

Maybe, because a lot of us grow up believing that our feelings are what matters in life. We make most of our big decisions on the basis of our feelings, from choosing a house to marriage.

And yet our feelings are constantly changing. This is not the place for getting into a discussion about marriage … but certainly when it comes to foreign exchange currency trading, we need to understand that our feelings are nothing more than a fleeting response to stimuli.

In a sense they are not real. They have no fixed or permanent existence. And they certainly do not make a good basis for the trading decisions to be made when foreign exchange currency trading.

Fear, especially, can be a forex trader’s worst enemy. Foreign exchange currency trading is risky and therefore it is inherently stressful. Stress causes a physical reaction, including production of the hormone adrenaline and the ‘fight or flight’ response.

We feel scared and we feel that we must take action immediately. Faced with a difficult trading situation, we are tempted to hang on in there at all costs (fight) or get out of the market (flight) depending on our emotions instead of on our foreign exchange currency trading system.

Fantasies about making a lot of money can be dangerous too. Like gamblers we dream of hitting the jackpot by finding the perfect trade or system, and all of the things we will do with all of that money.

Foreign Exchange Currency Trading – The Risks

This kind of fantasy leads us into taking big risks. The slow and steady approach to building up one’s foreign exchange currency trading account balance is just not fast enough for the big dreamer. He wants to get there quick, so he starts risking more and more on each trade.

Pretty soon he is at the point where a couple of losses will wipe him out. And guess what – it happens.It may seem that successful and experienced traders do rely on their intuition, but do not make the mistake of thinking that this is emotion based foreign exchange currency trading.

What can happen for a long time trader is that they are reacting to a situation on the basis of past experience that they don’t have any conscious memory of. This could be called intuition but it is not emotion. It is born of experience.

In order to have success with forex trading, the first thing you must learn is to follow a system and a trading plan to the letter. Only when you can do that 100% of the time can you afford to start bending the rules. The emotions must be put firmly in their place in foreign exchange currency trading.

Foreign Exchange Currency Trading: The Biggest Mistake is a post from: Great Forex World

Most traders, when they are starting out, spend a lot of time hunting around for the perfect system. Now of course it is true that you do need a system that has the potential to make profits, but there are still systems that some people make profits with and others do not. You will realize this if you look at online reviews. Some will say that a system is great and they are making a lot of money with it. Others are losing. Why is this? Often, it is all in the way that they manage their money.

Take for example a system that, on average, makes 30 pips profit per winning trade and 15 pips loss per losing trade, with 50% winning trades. Clearly this system will make a profit over time. However, if you have ever played roulette or tossed coins you will know that a system with an average of 50% wins will quite often have runs of 5 or more losses, or runs that go something like 8 out of 10 losses.

So even though this is a profitable system, a trader who was risking 20% of his funds on each trade, would quickly be wiped out by it. Someone risking 10% per trade would survive longer, but would probably still fall victim to a bad run in time.

Someone risking just 1% per trade, on the other hand, would probably be able to make money indefinitely with this system. Profits would be small at first, but they would grow and grow. And at 2%, a trader would probably still be safe while making twice as much money as the 1% trader.

Clearly, then, in order to maximize your profits from foreign exchange currency trading it is important to know a few basic facts about your system. This means at least backtesting it over a long period, and preferably testing in real time through a demo account too.

If you are sure that your system is profitable, you can begin to trade at low risk. However, to go as high as you safely can, you need to know what is the worst case scenario that you can expect, that is, the maximum loss that you are likely to encounter before an upturn in the worst bad run, then double it, and make sure that you will be able to cover that.

As a rule of thumb, limiting your risk to 2% of your account balance is a good strategy for most traders. This can be hard for beginners and those with low startup funds because it does mean that you will not get rich overnight. This can be disappointing but it is a fact of life. As the old saying goes, anything that looks too good to be true, probably is.

It is vital to understand that many of the cases that you see where people double their money in a month, for example, rely on using maximum leverage and maximum risk which might result in doubling your money in the first month and then losing it all in the second. This is gambling, not investing.

Foreign exchange currency trading is a process that can be used to make a lot of money, but only if you allow your funds to grow gradually, along with your experience. Understand that a 5% to 10% return on your investment per month is a great result, and you have a good chance of making money consistently with foreign exchange trading.

Foreign Exchange Currency Trading: How Much Money Can You Make? is a post from: Great Forex World