We have just had huge moves in the currency markets and some massive trends yet despite these trends being clear on the charts most traders have failed to turn these moves into profits - here are the reasons why...
A Short while ago in another article when the euro was trading up near 1.60, I postulated it may go to 1.40 and maybe even as low as 1.20 which is its true value in purchasing terms. Now the euro almost touched 1.20 and that's over 35 big points but how many traders followed it all the way down?
Not many and the reasons are simple.
1. Traders Don't like Trading Long term
Despite the fact that the big profits are made from trend following most traders try to day trade and lose as all volatility is random - they should look at the big picture and forget trying to trade in and out the noise of the market.
2. Stops are to Close
By trying to restrict risk, traders actually create it and guarantee they will be stopped out.
If you are trading forex you need to have your stop outside of random volatility - if you don't know what it is, make learning about standard deviation, one of your essential bits of Forex education.
Traders very often get the direction of the trend right and then get bumped out the trade by having their stop to close, get stopped out and then watch the trade sail over the horizon and their not in.
3. It's Cheap so must rally
Traders think that because a currency has fallen strongly, it will turn and yes it will - but remember, it maybe cheap but it can get cheaper!
Until it shows signs of a bottom stay with the trend.
4. Cannot Hold Open Equity Dips
As a trade develops and the profit gets bigger and bigger, the trader gets excited. As soon as open equity swings back against the main trend, the trader starts to panic and wants to snatch the trade, before the profit gets away.
Its here you need discipline!
Open equity dips are part of trading. If you don't accept a short term dip to make a huge long term gain, you will never make a lot of money.
You need confidence in what you're doing and the discipline to hold.
5. I Don't Deserve it
In forex trading many traders get bemused when they get big profit in a short space of time and in the back of their mind, their so happy to have some profit, they think its enough and should bank it. There really saying:
I have a profit, I am lucky so let's take it while its still there.
They just think there in the right place at the right time and don't think they deserve it, so they can't hold it and bank it early.
So there you have 5 reasons why traders cannot hold profits and most losing traders make one or more of the above mistakes.
If you want to win remember:
The Big Trends Are there - Catch Them!
The big trends last many weeks or months and although you have swings against the main trend.
The main trend reflects the economic health of the country the currency represents and these economic trends last a long time.
By being aware of them and using technical tools to time your entry and having the courage to hold, through short term dips in equity, you can make huge amounts of cash.
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