Online forex trading looks easy yet few succeed and the bulk of novice traders over 90% wipe out their equity quickly.
Whilst there are many reasons novice traders lose this is the one that wipes out most.
If you don’t overcome this problem you will get wiped out too.
The major problem is:
Dealing with volatility
Many novice traders are more often than not right about market direction, but get stopped out constantly and lose as they cant deal with volatility.
You must find a way to deal with volatility to win at online forex trading.
Make sure that you take calculated risks that mean you can keep losses small when they occur and stay in the trends.
This is much more difficult than most traders think, so lets give some advice on how to deal with it.
1. Don’t day trade
One of the biggest myths of online forex trading is that day trading works – It doesn’t!
Why?
Because daily volatility is totally random and you are trading off support and resistance levels that mean nothing.
There are many day trading systems sold but they don’t make money – ask for the real time track record of profits and you are met with a deafening silence.
Day trading is a mugs game and a guaranteed way to lose, don’t fall for the hype or you will lose your money.
2. Use breakouts
Perhaps the best way to trade is using breakouts of significant resistance or support.
When the breakout occurs go with it – its that simple and place your stop below the breakout point.
Most traders cannot do this.
Why?
Because they want to “buy low and sell high” they wait for the pullback to get in at a better price and of course it never comes.
The fact is that most major moves start from new market highs NOT market lows.
While the stop might have to be a bit wider on a breakout the odds of success are very high.
3. Trailing stops
Most traders are obsessed with locking in some profit and move their stop up as quickly as possible, but this is a guaranteed way to get stopped out.
Then they sit and watch the trade they were in make $10,000 or more and their not in.
Fact is if you want to stay with the big trends don’t trail stops up to quickly
Forex trading involves taking a risk. If you become obsessed with having stops to close or trailing them you will create risk and guarantee you will get stopped out.
4. Trade with momentum
Another error traders make is not trading with momentum indicators they simply enter above support or below resistance and “hope” it holds.
They think that as its close to resistance or support their stop can be close – Yes it can but odds of being stopped out are high.
This goes totally against trading with the trend.
To trade properly you need to get some evidence of a reversal in price and then trade.
Sure, your stop has to be a bit wider but the odds are more in your favour.
Final words
Novice traders try so hard to avoid risk they create it for themselves.
To trade online forex you need to take calculated risks on trades that have high odds of going the way you predict.
This means placing your stop further away and not trailing it to quick.
On paper you have wider stops and more risk – In reality you are trading the odds and have far more chance of making big profits.
By : Sacha Tarkovsky - http://www.net-planet.org/index.html
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