The Top-ten Mistakes Forex Traders Make

You are ready. You've done your homework. Youthe end of the year. To maintain my focus I will set a
have read the all right trading books, watched all thenear term goal every quarter to be at a 25% gain and
right professional trading videos and attended a few ofI will plot my equity daily. If I reach my quarterly goal
the right live seminars presented by big-nameahead of the last trading day of the quarter I will take
professional traders. You've researched your brokers,a two-day break. I will hold any open positions that are
did your trials of various electronic trading platforms,at a profit but any open trade losses I will close at that
and have your trading account ready to go. It's daypoint before I take a break.
one of your new career-hopefully the one that willÂ
finally send you down the road to financial freedom.If my open trade gains continue into the new quarter I
Congratulations, you are now a FOREX Trader.will add to those winning positions by a factor of 25%. I
Âwill move my protective stops up to reduce my
But the odds are against you. You know that. You'veexposure on the entire position.
read the statistics and heard the critics; but you areÂ
confident you won't be the one to fail. You have theIf I am behind on my trade goal for the quarter, I will
best trading system and you have planned for everytake a five-day break. I will re-evaluate my trade
contingency you can think of. Your charts, analysis andsystem and ask the question: "Has my market quality
research are up-to-the-minute and instantly ready forchanged to something my system is not able to
every market you are going to trade. It's go time. Youperform at best?"
take a deep breath and click theÂ
mouse…your first trade is LIVE; you'reDuring the year I will not trade more than three
in the game.markets. I have learned I cannot focus well on more
Âthan three markets at a time.
Fast forward six months. Your account balance isÂ
lower than when you started. Sure-you had someIf I have more than four losing trades in a row in any
great trades and looking back, your analysis of mostof my three markets I will take a trading break for five
of the markets you traded was correct; but where isdays. Again, I will leave open position winners alone in
the profit you could have had? How did this happen?the other markets but close all losing positions. I will
How do you get back on track?again roll protective stops to reduce my risk.
ÂÂ
I'll tell you how it happened-because it happened to me;When I take a trading break, I will enter resting limit
more than once. It happened because the real worldorders in the open trade winners to take the objective
of trading and the textbook world of trading are twoprofit should I be unavailable and the market gets to
completely different things. You need to be ready forthose levels during my break.
that reality or you run a very big risk of being the oneÂ
who makes part of the statistics.If I am ahead of my plan for the year at any point I will
Âtake a break. I will take 30% of the new equity out of
If you want to read the whole story of how I got to bemy account and place that into a secure place. If I am
a professional FOREX and Futures trader pick up abehind I will not add equity under any circumstances. If I
copy of The Art of the Trade (Wiley & Sonsreach a 40% drawdown from my high equity I will quit
publishing August 2008). I think you will be surprised tofor the year.
learn what is really required to be successful. In fact, IÂ
bet you are downright shocked to discover what isI will record my daily trade activity in my trading log and
required.review this weekly. I will know my ratios and results; I
Âwill look to improve them by 5% each week.
If you would rather not read another book and simplyÂ
want to get down to making your fortune, then I wouldI will trade only from the bull side because my analysis
encourage you to at least take the next few pagestells me that all three of the markets I have selected
very seriously. Find a way to keep the thoughts youhave more than a year of solid bullish fundamentals. I
find here at your fingertips and consider them equallywill learn how to use options this year because I see
or more important than all your pre-trade preparationfrom last year I could have protected more trades if I
and analysis. If you seriously want to avoid the worsthad a solid grasp of when to use options and when
that could happen; then take some advice fromnot to. I will invest two-hours a week on option
someone who knows.knowledge.
ÂÂ
Before we get to The Top Ten Mistakes FOREXMy son is leaving for Europe in May. I will not trade the
Traders Make, I want to give you some perspective. Iweek before he leaves or the week after. I plan to join
started my career at a time when the markets werehim in the fall for Oktoberfest for one week and will
only just beginning to see the growth and publicnot trade the three days before I leave or when I get
interest that they have today. The technology you andback. I know I suffer from jet-lag so the week after I
I take for granted today hadn't even been inventedam back I am not at my best. I have blocked out these
yet. It took me years to learn what I needed to learn totimes on my trade calendar so I will not be tempted to
be successful, without any of the help you havetrade anyway.
available FOR FREE anytime you want. You need toÂ
accept one very critical thing: the most important partÂ
of lasting trading success has nothing to do with theIf you read between the lines you will notice that his
markets. It's all in your head. All this FREE stuff is nottrade plan included all the things that were in his
going to offer you an easy road.control-NOT things outside of his control; like the
Âmarkets. If you want to get serious about writing a
If you are willing to consider that the humansolid trading plan pick up a copy of my first book
element-the way you think and how you behave-is theTrading Rules That Work: the 28 essential lessons
REAL variable to lasting trading success; then I thinkevery trader must master (Wiley & Sons Publishing,
you will get where you want to go a lot faster andOctober 2006). I also teach about trading plans in my
with a lot less headache. If you are ready to getdaily broadcasts and in my Psychology of Trading
serious about your personal trader psychology thencourse. Please see my website for details.
please come to my twice daily FOREX trainingÂ
sessions. If you really want to avoid the disasters youHOW TO MAKE THIS MISTAKE WORSE: Base your
have read about then take my advice; don't maketrading plan on hypothetical profits or on how well you
these mistakes.did paper-trading, Ignore your personal emotional needs
Âwhen compiling a plan, Ignore your family while making
So let's get's started…a plan, keep thinking you can trade everyday or all the
Âtime, average your potential over a period of time and
MISTAKE # 10think results will equal a daily amount.
ÂÂ
PAPER TRADING TOO LONGSOLUTION: Ask a professional trader to show you his
Âdaily/weekly/monthly or annual trading plan. Ask
Paper trading is hypothetical trading. If you have neveryourself if you can make a plan that addresses similar
traded anything before, you will probably do somethings. If the professional you have selected can't
paper trading. The benefit of paper trading is that it willshow you or won't show you his plan then ignore what
help the new trader become acquainted with thehe has to say. If he isn't using a plan then he is likely
basics of interfacing with the markets. This is often aunable to assist you in building wealth. There are
"demo" account with a broker or clearing firm thatresources for writing trade plans on my site; please
provides real-time market data but provides ause them.
hypothetical balance. You are allowed to buy and sellÂ
as much as you want, just like in a "live" or "real"MISTAKE # 8
account. Your hypothetical gains and losses areÂ
accrued against your hypothetical account balanceTRADING TOO LARGE FOR YOUR ACCOUNT
over time. As time goes on, most traders find that theyÂ
can gain quite a surprising amount of paper-profits in aThe fastest way to go broke is to bet it all-all the time.
very short period of time. These traders are nowMost traders don't learn this lesson until they have had
completely convinced that they can easily duplicateat least one blow-out; by that I mean they have lost all
those hypothetical results in real time with real money.their equity quickly and have had to start over.
They open their real trading account and POW! WithinÂ
about three to four weeks they are down usuallyFor some reason, there is a tendency for traders of all
more than 50% of their equity. This is not myage and experience levels to trade too large for the
opinion-this is actual fact. Ask any broker in the industryactual cash in their account. This is a symptom of a
what happens to "paper-traders" who open a reallarger problem and unless you are willing to consider
account. The ratio of "paper-traders" to "winningthat you personally might have this problem already
traders" is about one in ninety.you most likely will be trading too large for your
Âaccount right now today.Â
Why does this happen?Â
ÂWhat is this larger problem?
Because there was never any real risk to the trader.Â
ÂGREED, BABY-GREED
Let me illustrate by telling you a story:Â
ÂIt is unrealistic for you to believe you are going to
I am a private pilot. I soloed on my 17th birthday. In 1979make a killing on THIS ONE TRADE RIGHT NOW.
I was an Air Force academy appointee. I have flown aSure, you might be on the right side of a large move
T-38 Jet fighter in extreme conditions. Just knowingbut that will take time and evidence to see. For this
that, I think most people would agree that I probablymoment, any trade you have on has the potential to
have a certain amount of experience flying airplanes.run the other way against you and if you are trading
Âtoo large, your potential to lose a lot on only a few
Here in the suburbs outside of Chicago there is a smalltrades is huge. No matter your age, education, skill or
airport that has a "Fighter Pilot for a Day" program.experience level you are not going to make 100%
This is where you fly co-pilot with a retired military pilotwinning trades. Therefore a certain percentage of
in high-performance aircraft. You are allowed to fly theyour trades will simply not work. Those trades cannot
aircraft (with the real pilot's hands on the controls) in anbe so large that you lose a significant portion of your
attempt to "shoot down" an "enemy" fighter; which isequity in the process.
another co-pilot flying another airplane with HIS retiredÂ
military pilot. You are awarded a "kill" if your laser gunsTo beat the greed habit you need to make a few
hit your opponent. It's like a very expensive high-stakeschanges to both your equity management and more
game of laser-tag.importantly to your thinking.
ÂÂ
I went for a day to have some fun. As it turned out, IFirst, trading is a business. You need to treat it like one.
was flying against a complete novice. Of course, IThere are certain things every business needs to run
didn't tell him I had some Air Force training. I asked myeffectively and the first thing is liquidity. Simply put, if
adversary what kind of training he had. He veryyou run out of cash to play you can't remain open.
confidently told me that he was the top scoring "ace"Â
from his on-line club and various other nationalSecond, if you had a reasonable plan in place already
methods of playing of high-tech video games. He toldthen it is a good guess that your plan calls for only a
me that he could "out-fly" almost anyone in thereasonable amount of percent gain on your equity
Microsoft Flight Simulator in both the F-16 Falcon andregularly. If you were to use some basic mathematics
F-15 Eagle. I agreed that his credentials were verywhile creating a sound trading approach one of the
impressive and proceeded to blow him out of the skythings you would be looking for was a realistic
no less than six times in 20 minutes. To start with, this"risk-to-reward" ratio. That means for every dollar you
novice had never flown in aerobatic conditions so helose you expect to make a certain number of dollars
spent most of his time trying not to throw-up. Heand out of every 100 trades a certain percent will be
stalled and spun most of the other time. If he wasn'twinners and some will be losers.
flying with someone he'd be dead. In the end he had toÂ
quit early because he simply couldn't take the physicalIf you put this all together and asked the "what-if?"
punishment. To add insult to injury, I have never playedquestions you get this base-line number that statistically
Microsoft Flight Simulator (ever). I do the real thing. BIGwill be a winning set of results:
DIFFERENCE between the two as you can see.Â
Â42% winning trades out of 100 taken
Do you see the point I'm getting at? PRETENDING toTwo dollars out for every dollar you give back
do something is never the same as actually doing it.Â
Yes, it is helpful up to a certain point to simulate certainThis is not my opinion, this is the Probability of Ruin
things but that can only take you so far. In the case ofMatrix and you can research it yourself if you have
air-to-air combat, PRETENDING to be a fighter pilot willtime. Of course, if you have higher percentages of
likely get you killed if you ACTUALLY go up against awinners and take more out on those winners you
trained fighter pilot. In fact, the US Army Air Corpsmake money a lot faster but the point is if your results
learned this the hard way back in WWI. They sentare at least this good consistently you are on your
young men into combat with oftentimes less than 10way to success. I teach more about that in Trading
hours of actual flying time. Imagine how fast thoseRules that Work and in my Psychology of Trading
men were killed when they went man-to-man withcourse.
Richthofen, Boelke and Immelmann. EveryoneÂ
concluded flying was "dangerous" when in fact it wasIt's great to be on the high side of the matrix but most
the lack of training that was "dangerous"of us didn't start there and that is why you have to
ÂTRADE SMALL at first. To protect yourself from
I'm not trying to impress you with my flying skills. I'mbeing greedy about your trading and to help you stay
trying to impress on you that paper-trading is exactlyfocused on long-term success it is important to make
like playing Microsoft Flight Simulator. It is pretending toyour trade size small enough so that it won't leave you
be something you are not while convincing you thatin a position of not being able to play at all should you
you know what you are doing. Paper trading hideshave a string of losses all at once. I found that limiting
from you the need for real skills. Paper-trading will getyour risk/reward ratio to a factor of about 1.5% on any
you killed because when you go up against realone trade is a great way to stay focused and not get
traders with real money it's not a game anymore. Ifgreedy.
you make the wrong move you lose equity. There isÂ
no "do over" button. If you stall your F-16 in theThis means that for any one trade you take, no
simulator, you get another chance; stall your F-16 inmatter how you think of the trade or how certain you
combat and you die. Lose money in your paper-tradingare of a win; you will not risk more than 1.5% of your
account; just sign up for another trial account. Loseaccount balance at any one time. This means that if
money in your real account and you go home broke.you are trading so that your average loss is 3-5% of
Âyour account balance at any one time-you are trading
Paper-trading is a waste of time becauseTWO to THREE TIMES TOO LARGE for your
paper-trading will never give you the real skills youaccount size. In that case, the Probability of Ruin Matrix
need to trade. All paper-trading can do is help youwill work against you and you will likely run out of
learn how to use the functions of your trading platform.capital before you make money with your approach.
In fact, that is a good thing. But once you learn theÂ
functions of your platform and your account is readyIf you are the greedy trader right now and you are
to trade, everything you learned paper-trading goesguilty of making this mistake; If this means you have to
out the window because NOW IT IS DO OR DIE.drop your trading size down a few notches then you
There are no second chances.had better call your broker today and fix it-because if
Âyou don't you are an accident waiting to happen. It only
Don't make mistake #1; don't think you know what youtakes making this mistake THREE TIMES IN A ROW
are doing because you pretended to trade withoutto drop your account balance 15% or more in a
taking any real risk.heartbeat; especially if you are day trading!
ÂÂ
HOW TO MAKE THIS MISTAKE WORSE: ContinueHOW TO MAKE THIS MISTAKE WORSE: Convince
paper-trading for more than 30 days and/or go backyourself you are so good at trading that this couldn't
to paper-trading if you have lost money in your firstpossibly happen to you, convince yourself that your
real account.analysis is good enough to help you find 80-90%
Âwinning trades all the time, trade without a stop-loss
SOLUTION: Open the absolute smallest account yourorder "just this once", double-up on the next trade after
broker will allow and trade for 90 days the absolutetaking a large loss.
smallest size possible. If you are ahead, increase yourÂ
equity size and your trade size by a factor of 20%. IfSOLUTION: Immediately reduce your account balance;
you are losing, stay with the real thing; it's the only waytake 20-30% of your cash home. Trade position sizes
to learn.that are no more than 300% as valuable as your
Âaccount balance. In other words, if your account size is
Â$10,000, don't trade anything that has a total contract
MISTAKE # 9value larger than around $30,000. If that means trading
Âmini's instead of big-board you had better do it.
NOT HAVING A TRADING PLANÂ
Â---------------------------------------------------------
Suppose you called your 401K manager this afternoon.Â
Suppose you asked him "What is your plan for theWe hope you've enjoyed the first few mistakes that
next six months?" Suppose he told you "Oh-whatever.traders make, and that it opens up your eyes to the
I just try to get on the right side and if I don't I just getForex markets a little more! This is a mini version of
out"our TOP 10, which we like to spread around for your
Âoverall knowledgebase, and to show you the quality
How long would that guy be managing your retirementyou get with the Forex Brotherhood. Once you
money if you had any say in the matter?become a member with us, you get the rest of this
Âguide, two daily live webinars/broadcasts, two daily hot
Many traders take the same attitude with their dailyreports, an automatic EA, a VIP forum to mingle at,
work habit and many don't even know they do it. Notand obviously a learning curve that will be shortened 10
having a clear and concise plan for your daily tradingfold with our curriculum and premiums.
presence is a serious mistake and you need toÂ
address it. The best way to describe a sound plan isPlease consider me a friend in the business. I have
to let you read one from a professional full-time trader.many products and services available to you that
This is an actual trade plan form a friend of mine whohave been created from my hard-won experience.
is an E-mini trader:They are all designed to help you do two things: Stay
Âfocused on what really matters when trading FOREX
2006 Trading Planand stop making costly mistakes. I hope you will
Âconsider joining me and my online community for my
My goal is to earn 100% on my trading equity beforetwice-daily internet FOREX broadcasts.