Friday 11 May 2007

Online Forex Trading – 3 Common Errors That Will Make you Lose

Author: Sacha Tarkovsky

Trading was seen as the way for the little guy to compete with the big professional traders but guess what?

The ratio of losers remains them same as it was before the rise of online FOREX trading.

How can this be so surely they should do better? The answer is no because traders make these common errors.


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1. Blinded by technology

This happens to many novice traders they see the vast amount of news and indicators at their disposal and think they have technology on their side and will win.

Most over complicate their trading and lose.

Simplicity is the key to trading and this was so before the rise of online trading and is still true today.

There is no correlation between how complicated a system is and how much money it makes.

In fact, simple systems are best as they more robust in the face of brutal market conditions.


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2. Day trading and over trading

The rise of online forex trading has seen the bulk of new traders try and make money day trading.

This is a huge mistake.

Day trading doesn’t work, as the logic it’s based upon is nonsense.

Day traders have no reliable data to work with.

It's obvious that daily moves are random as daily volatility is random!

Day traders argue that trading short term is possible with online forex trading but this is not true you cant win if you cant calculate the odds.

Don’t believe me?

Ask any day trader for a real time track record of profits, they have made over the longer term and you wont get one – because it doesn’t work – PERIOD


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3. Money management

The speed of the Internet in delivering information has increased volatility.

This means that traders have to be far more careful with money management than before.

Most traders in online forex trading are trying to restrict risk so much that they almost guarantee they will be stopped out and lose.

If you want to make money in forex trading your stops cannot be to tight or volatility will simply stop you out.

You need to take risks to make profits and this is as true as it’s ever been.

Placing stops close to entry may keep your losses small, but what’s the point of that if you are almost guaranteeing yourself that you will are stopped out?

To make money you need to risk it – It’s as simple as that.

The tools need to be applied correctly!

Online forex trading is seen as a way for the little man to compete on an equal footing with the big players but nothing could be further from the truth.

Online forex trading has lured many traders into a false sense of security where they think because they have all the tools they can win (but they don’t learn how to apply them)

Additionally, they think they can now catch short term moves and engage in the best way to lose money in forex – day trading.

Finally, they think they don’t need to take big risks to make big gains and end up eroding their accounts with consistent losses - all small but they add up.

Online forex trading has not seen any increase in small speculators winning and the three reasons above are the major ones why

Forex Trading - Diversify for Lower Risk and Greater Reward

Author: Sacha Tarkovsky

Most forex traders like to trade the majors only but in my view you can get some great opportunities in some of the minor currencies. You can diversify and get more profit opportunities

Lets look at two that can add some diversification and have some great trends you can take advantage of.

Two good currencies to trade alongside the majors are the Canadian and Australian Dollar.

While not as liquid as the majors, they offer some great trading opportunities for traders with a longer-term outlook.

Lets look at opportunities in these currencies.

We will use the free chart service futuresource.com and look at the IMM futures contract, although same logic of course applies to the cash.

The Australian Dollar

If you look at the chart you will see that this currency has been trading in a range since December.

The same system we have used to range trade the majors works here as well.

You can simply use stochastic crossovers to trade against support and resistance until a major break appears.

At present the Australian dollar looks set to test the top of the range, if it breaks through the mid point of the Bollinger band.

The Canadian Dollar

The Canada is trending down against the dollar and has had a rally - this should end shortly.

The key to look for is a cross in stochastic momentum with bearish divergence to indicate the downtrend will resume.

Like the Yen the Canada is bearish and rallies are selling opportunities.

These currencies add some diversification to any forex trading portfolio and the Canadian Dollar in particular offers a great strong trend to the downside where you can sell rallies.

Don’t fall in love with one currency simply trade the ones that have the best opportunities and risk to reward.

At the present we would in terms of trend following have the Canadian dollar with the yen as the strongest trend to trade.

In the Canadian dollar a great short opportunity is presenting itself as it corrects oversold status.

Wait for the price momentum to turn south with the stochastic showing bearish divergence and when this occurs a test of the lows should occur.

As with any currency wait for the stochastic to give you the signal - don’t anticipate wait for confirmation.

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