Forex Problem Solving – Forex Academy

As a forex trader, there’s a lot to know when it comes to making money… and avoiding the loss of money. Psychological problems, technical errors, and other issues have the potential to really affect how much cash actually winds up in your pocket at the end of the trading day. If you’re looking to maximize your profits, you should take a look at the 3 trading problems we’ve listed below to ensure that you are not making any of these mistakes.

Problem #1: Using the Wrong Position Sizes

Using the correct position size is crucial for walking away with the best profit possible – if you use an improper position size, you could either lose out on a lot more or end up with a lot less than you could have. Finding the right size to use has to do with risk management. You need to understand how much you could lose, but your understanding should extend beyond your initial risk. You’ll need to be able to tell when you should make large trades and when it’s best to limit your exposure on each trade.

The best time to increase your risk is when the market is trading in your direction, you have a high probability to win, and there is a possibility for large rewards. You’ll want to use smaller position sizes when things are moving less in your favor so as to limit the loss you’ll take if you do lose.

Problem #2: Letting Fear Rule You

It’s good to be careful when trading, but you can’t let the fear of losing money get the best of you. This causes some traders to pull out of trades too early when they could have stayed in the trade and made more money. Others have issues entering trades at all, even if the evidence supports their idea that entering the trade will be profitable. If you let yourself pull out of trades early or you find yourself avoiding good moves, your fear is going to eat into your profits a great deal. Fortunately, there are many tips online that can help you deal with this specific trading problem.

Problem #3: Not Adapting to the Market

In order to make the most profit possible, traders have to learn to be adaptable. This means that traders need to be able to adjust to changing market conditions, as the market is constantly changing. You’ll also need to adapt your expectations to fit those current conditions. For example, you can’t expect that you’ll catch a big swing move when volatility is low or when the market is trading in a tight range. Always ensure that your trades are planned with the current market conditions in mind.

The forex markets are complicated, there is a lot of information that is constantly changing, being able to keep up is a challenge, especially if you come into it wanting to learn and do everything, which let’s face it, is practically impossible.

As a new trader, you would have come across losses, probably a lot of them and a lot of them in a row, the reasons behind these losses can be difficult to work out due to a number of different reasons which are not necessarily your fault but they may be things that you are able to counter in the future with a bit of learning and experience.

So what exactly could these issues be and how can you help to get around them?

Not having a set trading plan: Normally when people start out, they want to try a bit of everything, it is great to experiment and it is great to find the style that suits you, but a lot of new traders take this to an extreme level and can try a different strategy every single day or even every single trade. N order to truly test out a strategy and to see whether it is right for you, you need to give it at least a month of trading, this will let you see both the ups and downs of the strategy and also help you to work out whether you have the right mentality for that type of trading system.

Emotions: Emotions are a part of trading, there is no doubt about that. What is different about newer traders and experienced traders is how raw those emotions are. If this is your first or second loss, it is going to hit you both psychologically and motivationally very hard, much harder than those that have traded for a while. These hits can cause a lot of different emotions, one of the most damaging is the desire to win that lost money back, this then takes us into the realms of gambling and can eventually lead to a lot of financial issues, not something you want to be doing.

Lack of training and education: Starting out you are going to have gaps in your knowledge, heck, people who have traded for years have gaps in their knowledge, however, when starting out, there is a very steep learning curve, going from 0 to 100 in an instant. There is so much to learn, but you should be ensuring that you have some knowledge on the thing you are planning to trade, whether that is a currency pair, a certain strategy, and even knowledge on how your trading platform works, we have seen plenty of questions with people trading and not actually knowing how to set stop losses or even how to close a trade.

Not using a demo account: You have probably been told that you should be using a demo account to try out new strategies rather than risking your own money, well this also counts for new trades, you should be spending an extended amount of time, in the beginning, using a demo account, this means that there are no risks to your equity when practicing and learning the basics. Don’t take it for granted, use a demo account.

Using an EA straight away: An Expert Advisor is a piece of software or code that will make trades for you, this has made forex trading extremely accessible with many being marketed as a way for someone with zero knowledge to trade, however using these robots without any knowledge can be dangerous, you do not know how it works and there is not one single holy grail of EAs, they will all have their issues and so knowing how it works will allow you to alter it when things are going wrong, having no knowledge means you are putting all faith in the software which can often lead to disaster.

Not knowing the markets: This is something that you can never actually master, but having a basic understanding of how they work, both in regards to trends and reversals, but also things like how economic news can affect trades, not watching out for news events has caused a lot of accounts to blow and a new trader may not know that they should be looking out for them, or what they actually mean. So this is yet another learning area for newbies.

So those are some of the reasons why new traders may be caught out, have a think, did you come across any of these issues, and do you still fall for them, some of these are still relevant to experienced traders too, which shows us how large the forex trading world is and how much there actually is to do and learn.