Traders following a trading system need to be aware of some of the associated pitfalls that can seriously impact the profitability of their trading. One of the most important pitfalls to avoid consists in failing to follow the system properly under all optimum trading conditions.
Guest post by Forex News Now
Major Pitfalls to Avoid
Below find listed some of the more common pitfalls traders experience when following a system:
- Failing to Enter a Signaled Trade – a trader may have many reasons for not taking action on a trading signal. Nevertheless, by failing to act on a trading signal, the trader might be missing out on a profitable trade that could have earned them significant profits or made up for past losses.
- Taking Trades Without Entering a Stop–Loss Order – many traders assume they can watch their levels without entering a stop-loss, and get out in time. The currency market can easily exceed any level in the blink of an eye, and often does when significant economic data is released. By simply placing a stop-loss order every time the trader takes a position this situation is easily avoided.
- Taking Trades Based on Outside Factors – entering into trades which provide excitement or some other emotion can seriously undermine a trader’s success, especially if the trades are taken outside of the trader’s system. Also, listening to recommendations by other traders and taking trading suggestions outside of the trader’s system can cause additional problems. This foible can be especially negative because it allows the trader to blame the external circumstance for their losses.
- Using too Many Systems – keeping an eye on too many indicators can lead to confusing trading signals, which in turn could lead to unprofitable trades. The problem arises in the compromise of the trader’s ability to focus and interpret the signals accurately, having too many signals to interpret. Keeping it simple and limiting trading signals to a few reliable ones can increase the likelihood of entering profitable trades.
- Trading with Excessive Risk – taking positions which may compromise the account has been the quickest way for some traders to go out of business. With the amount of leverage available in the forex market, the level of risk must be carefully watched. Assessing the optimum size for each position and only allowing a certain percent of the account to be at risk at any one time will assure a trader’s longevity. Never risk money you can’t lose.
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